深赤湾Ｂ(200022)2007年年度报告（英文版）

2007 ANNUAL REPORT SHENZHEN CHIWAN WHARF HOLDINGS LIMITED Important Note The Board of Directors, the Supervisory Committee as well as the directors, supervisors and senior management staff of Shenzhen Chiwan Wharf Holdings Limited (hereinafter referred to as “the Company”) hereby confirm that there exists no omission, misstatement, or misleading information in this report, and accept, individually and collectively, the responsibility for the correctness, accuracy and completeness of the contents of this report. This Annual Report has been reviewed and approved by the Seventh session of the Fifth Board of Directors. Mr. Liu Ruiqi and Mr. Ng Pock Too, independent directors of the Company did not attend the session due to business reasons and appointed Mr. Zhang Limin, also an independent director of the Company, as their proxy to attend and speak at the session on their behalves. Mr. Liu Ruiqi and Mr. Ng Pock have given their consents to the full contents of this annual report. Mr. Fan Zhaoping,a director of the Company did not attend the session due to business reason and appointed Mr. Yuan Yuhui,also a director of the Company, as his proxy to attend and speak at the session on his behalf. Mr. Fan Zhaoping has given his consents to the full contents of this annual report. Chairman of the Board Ms. Wang Fen, as well as Chief Financial Officer of the Company Mr. Zhang Jianguo and Financial Manager Ms. Zhang Yuanling hereby confirm that the Financial Report in the Annual Report is true and complete. — The Annual Report is written in both English and Chinese. In case of any discrepancy between the two versions, Chinese version prevails. — According to certain regulations issued by China Securities Regulatory Commission, the Company needn’t to prepare Financial Statements under International Financial Reporting Standards, thus all the financial data disclosed in this report was prepared under Chinese Accounting Standards. Table of Contents PART I COMPANY PROFILE 1 PART II FINANCIAL AND BUSINESS HIGHLIGHTS 2 PART III CHANGES IN SHARE CAPITAL AND SHAREHOLDERS 3 PART IV DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT STAFF & EMPLOYEES 9 PART V CORPORATE GOVERNANCE 13 PART VI ANNUAL GENERAL MEETING 22 PART VII REPORT OF THE BOARD OF DIRECTORS 22 PART VIII REPORT OF THE SUPERVISORY COMMITTEE 33 PART IX SIGNIFICANT EVENTS 35 PART X FINANCIAL STATEMENTS (See attached) 45 PART XI DOCUMENTS FOR REFERENCE 45 2007 Annual Report PART I COMPANY PROFILE A. Company's Name in Chinese 深圳赤湾港航股份有限公司（深赤湾） Company's Name in English Shenzhen Chiwan Wharf Holdings Limited (Chiwan Wharf) B. Legal Representative Ms. Wang Fen, Chairman C. Company Secretary Ms. Pei Jiangyuan Authorized Representative Ms. Bu Dan and Mr. Li Ying Address 13/F., Chiwan Petroleum Building, Shenzhen, PRC Tel +86 755 26694222 Fax +86 755 26684117 E-mail cwh@cndi.com D. Place of Registration Chiwan, Shenzhen, PRC Offices 12-13/F., Chiwan Petroleum Building, Chiwan, Shenzhen, PRC Postal Code 518068 E-mail address cwh@cndi.com Internet Website http://www.szcwh.com E. Newspaper for Information "Securities Times" and "Ta Kung Pao” Disclosure Website for Annual Report http://www.cninfo.com.cn Annual Report Preparation Secretariat of the Board of Directors F. Stock Exchange Shenzhen Stock Exchange Stock Short Name Chiwan Wharf A/Chiwan Wharf B Stock Code 000022/200022 G. Other information Date of Original Registration 19 July 1990 Place of Registration Chiwan, Shenzhen Business Registration Number 440301501124494 Tax Registration Number Guo-Shui-Shen-Zi No. 440300618832968 Di-Shui-Deng-Zi No. 440301618832968 Organization Code 61883296-8 Accounting Firm (Domestic) PricewaterhouseCoopers Zhong Tian Certified Public Accountants Room 3706, Di Wang Commercial Centre 5002 Shennan Road East Shenzhen, 518068, PRC Accounting Firm (Overseas) PricewaterhouseCoopers 22nd Floor, Prince's Building, Central, Hong Kong -1- 2007 Annual Report PART II FINANCIAL AND BUSINESS HIGHLIGHTS A. Profit Breakdown for 2007 (RMB) 2007 Operating profits 1,045,573,041 Total profits 1,042,771,441 Net profit attributable to equity holders of the Company 663,872,167 Net profit attributable to equity holders of the Company 664,757,767 before extraordinary gains and losses Net cash flows from operating activities 1,197,492,986 * Net profit for 2007 and net assets as at the end of 2007 in the Financial Report prepared under Chinese Accounting Standards (CAS) and International Financial Reporting Standards (IFRS) Unit: RMB CAS IFRS Net profit 992,504,204 992,504,204 Net assets 3,144,621,751 3,144,621,751 Reason for difference After performing new CAS for business enterprise, there existed no difference in either net profit for the reporting period or net assets as at the end of reporting period as set out in the Financial Report prepared under CAS and IFRS. * non-recurring gains and losses items Items Amount Net losses on disposal of non-current (3,583,718) Other non-operating expense-net 782,118 Tax effects on extraordinary gains and losses (85,837) Minority interests on extraordinary gains and losses 2,001,837 Total (885,600) B. Major accounting data and indexes over the past three years up to the end of 2007 (RMB) Items 2007 2006 2005 Revenue 2,003,562,530 1,948,638,423 1,806,093,009 Total profit 1,042,771,441 1,041,830,198 987,056,972 Net profit attributable to equity 663,872,167 626,836,148 586,342,497 holders of the Company Net profit attributable to equity holders of the Company, before 664,757,767 625,639,289 622,000,211 extraordinary gains and losses Total assets 5,457,335,718 4,605,598,614 4,576,652,777 -2- 2007 Annual Report Total equity attributable to equity 2,585,863,265 2,262,433,316 2,110,220,295 holders of the Company Earnings per share 1.030 0.972 0.909 Net assets per share attributable to 4.011 3.509 3.273 equity holders of the Company Net cash flows from operating 1,197,492,986 1,146,012,470 1,216,120,674 activities Net cash flows per share from 1.857 1.777 1.886 operating activities Return on equity 25.67％ 27.71% 27.79% C. Return on equity and earnings per share calculated in accordance with the requirements of the “Rules for the Compilation of Information Disclosures by Public Companies (No. 9)” issued by CSRC Return on equity Earnings per share Profit for 2007 Fully diluted Weighted average Fully diluted Weighted average Net profit attributable to equity holders of 25.67％ 27.83％ 1.030 1.030 the Company Net profit attributable to equity holders of the Company before extraordinary gains 25.71％ 27.86％ 1.031 1.031 and losses PART III CHANGES IN SHARE CAPITAL AND SHAREHOLDERS A. Changes in Share Capital 1. Changes in the stock of shares of the Company Before the Increase(+)/decrease(-) After the change change Issue of Bonus Reserves Number Percentage additional Other Subtotal Number Percentage issue to stocks shares 1. Shares subject to trading moratorium 371,040,524 57.54% -23,302,822 -23,302,822 347,737,702 53.933% a. State-owned shares b. State-owned legal person shares c. Other domestic shares Including: Shares held by domestic corporations 370,802,900 57.510% -23,243,415 -23,243,415 347,559,485 53.905% Shares held by domestic individuals 237,624 0.037% -59,407 -59,407 178,217 0.028% d. Shares held by overseas shareholders Including: Shares held by overseas corporations Shares held by overseas individuals 2. Shares not subject to trading moratorium 273,723,206 42.453% +23,302,822 +23,302,822 297,026,028 46.067% a. Ordinary shares denominated in RMB 93,936,014 14.569% +23,275,762 +23,275,762 117,211,776 18.179% b. Domestically listed foreign shares 179,787,192 27.884% +27,060 +27,060 179,814,252 27.888% c. Overseas listed foreign shares d. Others 3. Total shares 644,763,730 100% 644,763,730 100% 23,243,415 A shares of the Company held by the Company’s controlling shareholder, i.e. China Nanshan Development (Group) Inc. (hereinafter referred to as “CND”) were released for circulation -3- 2007 Annual Report on 3 July 2007. Relevant announcement was disclosed on Securities Times and Ta Kung Pao dated 30 June 2007 (Announcement No. 2007-023). Shares held by senior management staff of the Company were released for circulation in July 2007 in accordance with relevant regulations of China Securities Depository and Clearing Corporation Limited and Shenzhen Stock Exchange. 2. Changes in shares subject to trading moratorium Shares subject to Increased shares Shares subject Name of trading Shares released subject to trading to trading Time of Reason shareholder moratorium at the in 2007 moratorium in moratorium at releasing year beginning 2007 the year end Released in CND 370,802,900 23,243,415 0 347,559,485 line with 3 July 2007 provisions Wang Fen 82,632 20,658 0 61,974 As above July 2007 Fan Zhaoping 67,077 16,770 0 50,307 As above July 2007 Yuan Yuhui 14,040 3,510 0 10,530 As above July 2007 Han Guimao 13,988 3,497 0 10,491 As above July 2007 Zheng Shaoping 25,871 6,467 0 19,404 As above July 2007 Zhang Ning 22,490 5,623 0 16,867 As above July 2007 Nie Qi 11,526 2,882 0 8,644 As above July 2007 3. Issuance and listing of shares a. The Company was approved to issue 310,470,000 ordinary shares at a par value of RMB1.00 per share in February 1993, with 224,470,000 being the promoter's shares; 46,000,000 shares (the "A shares”) being issued to PRC investors (of which 6,000,000 shares were allotted to the employees of the Company), and 40,000,000 shares (the "B shares”) being issued to overseas investors. The A shares were issued at RMB3.10 per share and the B shares at RMB3.18 per share, which were payable at HKD2.83 per share. On 5 May 1993, the Company's A and B shares were listed and traded on the Shenzhen Stock Exchange. b. In June 1994, bonus shares were issued in a proportion of "one bonus share for every ten shares”. As a result, the total volume of the Company's shares rose to 341,517,000. On 16 June and 21 June 1994, respectively, 4,600,000 bonus A shares and 4,000,000 bonus B shares were listed and traded on the Shenzhen Stock Exchange. c. On 22 June 1995, the Company's promoter, China Nanshan Development (Group) Incorporation (CND), converted all of its 22,447,000 bonus shares to B shares, which were sold to overseas investors at an average price of HKD3.54 per share, and then listed and traded on the Shenzhen Stock Exchange. d. In December 1995, the Company issued 40,000,000 B shares to overseas investors at HKD2.90 per share, which were listed on the Shenzhen Stock Exchange on 15 December 1995. Consequently, the total volume of the Company's shares rose to 381,517,000. e. In June 2004, plan about capital reserves to share capital for 2003 was carried out as 3 shares for every 10 shares for the total 381,517,000 shares as recorded by the end of trading on the -4- 2007 Annual Report Company’s record date (last trading day) June 21, 2004. After the transfer, total share capital was increased from 381,517,000 to 495,972,100. f. In July 2005, plan about capital reserves to share capital for 2004 was carried out as 3 shares for every 10 shares for the total 495,972,100 shares as recorded by the end of trading on the registration day (last trading day) July 5, 2005. After the transfer, total share capital was increased from 495,972,100 to 644,763,730. g. In May 2006, the Company implemented its share reform proposal, pursuant to which each shareholder holding circulating A shares whose name appeared on the register kept by the Shenzhen Branch of China Securities Depository & Clearing Corporation Limited after the close of trading on the Shenzhen Stock Exchange on 29 May 2006 was allotted one share, paid RMB 11.5 in cash and granted eight put options by CND for every ten A Shares held (equivalent to 2.98 shares for every ten shares held). Upon the implementation of the share reform proposal, the shareholding percentage of CND in the Company was 57.51%. h. 23,243,415 A shares held by CND was released for circulation on 3 July 2007. In July 2007, 59,407 A and B shares of the Company held by senior management staff of the Company was released for circulation. i. The Company was approved to issue 6,000,000 Employees’ Shares at an issuing price of RMB3.10 per share in February 1993. The shares were put in trust with Shenzhen Branch of China Securities Depository & Clearing Corporation Limited in March 1993. After bonus shares were issued in June 1994, Employees’ Shares rose to 6,600,000, among which 600,000 bonus shares were allowed to be traded on 16 June 1994. On 1st August 1994, the Company's Employees’ Shares totaling 6,000,000 were allowed to become tradable, except those held by Directors, Supervisory Committee Members and senior management personnel according to relevant rules. B. Particulars about Shareholders 1. Number of shareholders and particulars about shares held 28,403, among which 20,781 being shareholders of A shares Total number of shareholders and 7,622 being shareholders of B shares Shareholdings of top ten shareholders Percentage of Shares subject Shares Nature of Total shares Name of shareholders shareholding to trading pledged or shareholders held (％) moratorium frozen CHINA NANSHAN DEVELOPMENT 57.51 370,802,900 347,559,485 0 (GROUP) INC. CMBLSA RE FTIF TEMPLETON ASIAN Holder of B 3.59 23,118,299 0 N/A GRW FD GTI 5496 shares Holder of B 2.35 15,128,018 0 N/A PLATINUM ASIA FUND shares THORNBURG INVESTMENT INCOME Holder of B 2.27 14,665,727 0 N/A BUILDER FUND shares IBT A/C JULIUS BAER Holder of B 1.75 11,294,724 0 N/A INTERNATIONAL EQUITY FUND shares THORNBURG GLOBAL Holder of B 1.21 7,778,942 0 N/A OPPORTUNITIES FUND(9P14) shares GOVERNMENT OF SINGAPORE INV. Holder of B 1.18 7,591,634 0 N/A CORP.- A/C "C" shares -5- 2007 Annual Report Holder of B FTIF TEMPLETON BRIC FUND 1.15 7,446,322 0 N/A shares MORGAN STANLEY INVESTMENT MANAGEMENT INC.---MORGAN 0.96 6,163,974 0 N/A STANLEY CHINA A SHARE FUND BANK OF COMMUNICATIONS - BOSHI XINXING GROWTH STOCK 0.92 5,919,622 0 N/A SECURITIES INVESTMENT FUND Shareholdings of top ten shareholders holding shares not subject to trading moratorium Number of shares not subject to Type of shares (A, B, Name of shareholders trading moratorium H or other shares) CHINA NANSHAN DEVELOPMENT (GROUP) INC. 23,243,415 A shares CMBLSA RE FTIF TEMPLETON ASIAN GRW FD GTI 23,118,299 B shares 5496 PLATINUM ASIA FUND 15,128,018 B shares THORNBURG INVESTMENT INCOME BUILDER FUND 14,665.727 B shares IBT A/C JULIUS BAER INTERNATIONAL EQUITY 11,294,724 B shares FUND THORNBURG GLOBAL OPPORTUNITIES FUND(9P14) 7,778,942 B shares GOVERNMENT OF SINGAPORE INV. CORP.- A/C "C" 7,591,634 B shares FTIF TEMPLETON BRIC FUND 7,446,322 B shares MORGAN STANLEY INVESTMENT MANAGEMENT 6,163,974 A shares INC.---MORGAN STANLEY CHINA A SHARE FUND BANK OF COMMUNICATIONS - BOSHI FUND XINXING GROWTH STOCK SECURITIES 5,919,622 A shares INVESTMENT FUND Explanation on associated The Company does not know if there is any inter-relations among the shareholders holding relationship among the top shares not subject to trading moratorium. CND does not have any relations with the ten shareholders: shareholders holding shares not subject to trading moratorium. 2. Trading moratorium of shares held by former shareholder holding non-tradable shares among top ten shareholders Name of Shares subject to trading Time for Increase of Trading moratorium shareholders moratorium held circulation tradable shares May 30, 2008 23,243,415 None CND 347,559,485 May 30, 2009 324,316,070 None In May 2006, the Company implemented its share reform, during which CND, the controlling shareholder of the Company, committed that nontradable shares held by CND would not be traded or transferred within 12 months from the day when the shares obtained circulation right. CND further committed that upon the expiration of the aforesaid period, shares sold by CND through trading system of Shenzhen Stock Exchange would not exceed five percent of total shares of Chiwan Wharf (excluding B shares) during the following 12 months, and not exceed ten percent during the following 24 months. 3. Information about the controlling shareholder of the Company -6- 2007 Annual Report Company name: China Nanshan Development (Group) Incorporation (CND) Legal representative: Dr. Fu Yuning Registration Date: September 28, 1982 Business scope: Land development, port services and transportation, as well as related bonded warehousing, industry, commerce, property and tourism and bonded warehouse. Registered Capital: RMB500,000,000 4. Within the reporting year, controlling shareholder of the Company remain unchanged, so did its shareholding structure. Shares held by CND had not been pledged or frozen. 5. Shareholding structure of the Company State-Owned Assets State-Owned Assets Supervision and Supervision and Administration Commission Administration Commission of the State Council of the State Council 100％ 100％ China Merchants Group State-Owned State-Owned China National Offshore Oil Assets Assets Corporation 55.766％ Supervision and Supervision 100％ Administration and Commission of Administration China Merchants Holdings Shenzhen Commission of (International) Company Municipal Guangdong Limited Government Province 100％ 100％ 100％ China Silverflow Shenzhen Guangdong China China HK Clifford Merchants Co., Ltd. Investment Petro-Trade National Ocean Wong (Nanshan) Holdings Develop- Offshore Oilfields Investment Holdings Co., Ltd. ment Oil Services Co.,Ltd Ltd Corporation Investment (Hong Co.,Ltd Kong) Limited (COOS) 36.52% 0.50% 26.10% 23.49% 7.83% 1.64% 3.92% China Nanshan Development (Group) Incorporation 57.51% Public A 27.90% Public B 14.59% Shenzhen Chiwan Wharf Holdings Limited Shares Shares 6. Shareholders of CND holding more than 5% of equity interests Shareholder I: China Merchants Holdings (International) Company Limited -7- 2007 Annual Report Legal representative: Fu Yuning Date of establishment: 28 May 1991 Business scope: investment holding and listing Registered capital: HK$500 million Shareholder II: Shenzhen Investment Holdings Co., Ltd. Legal representative: Chen Hongbo Date of establishment: 13 October 2004 Business scope: 1. provision of guarantees to state-owned enterprises in Shenzhen; 2. management of equity interests in state-owned enterprises other than those directly supervised and managed by the State-owned Assets Supervision and Administration Commission of Shenzhen; 3. asset restructuring, transformation and capital operation of the relevant enterprises; 4. investment; 5. other activities authorized by the State-owned Assets Supervision and Administration Commission of Shenzhen. Registered capital: RMB4.6 billion Shareholder III: Guangdong Petro-Trade Development Corporation Legal representative: Chen Qiang Date of establishment: 7 September 1993 Business scope: provision of comprehensive service for oil and gas exploitation; industry investment and development; transportation agency; sale of industrial production materials, petroleum products, construction materials, feedstuff, wood chips, furniture and electrical appliances; purchase of agricultural by-products. Registered capital: RMB112,773,000 Shareholder of IV: China National Offshore Oil Corporation Legal representative: Fu Chengyu Date of establishment: 7 September 1993 Business scope: cooperation with foreign partners for oil and gas exploitation in China's offshore areas Registered capital: RMB94.9 billion -8- 2007 Annual Report PART IV DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT STAFF & EMPLOYEES A. General Information As at 31 December 2007 Receiving Total Amount of payments Shares held Shares remuneration from Term of at the held at the Reasons for received from Name Title Sex Age shareholding office beginning end of the the change the Company units or other of the year year during the year associated (RMB) units or not Chairman of 2005.5- Wang Fen Female 53 82,632 82,632 0 Yes the Board 2008.5 2005.5- Fan Zhaoping Director Male 54 67,077 53,877 Sell 0 Yes 2008.5 2005.5- Yuan Yuhui Director Male 58 14,040 14,040 0 Yes 2008.5 2005.5- Han Guimao Director Male 58 13,988 13,988 0 Yes 2008.5 Director, Zheng 2005.5- General Male 45 25,871 25,871 985,000 No Shaoping 2008.5 Manager Director, Deputy 2005.5- Zhang Ning Male 48 22,490 22,490 723,000 No General 2008.5 Manager Independent 2005.5- Zhang Limin Male 53 0 0 80,000 No Director 2008.5 Independent 2005.5- Liu Ruiqi Male 51 0 0 80,000 No Director 2008.5 Independent 2005.5- Ng. Pock Too Male 63 0 0 80,000 No Director 2008.5 Chairman of the 2006.5- Guo Yonggang Male 57 0 0 0 Yes Supervisory 2008.5 Committee Vice Chairman of 2005.5- Yu Liming the Male 46 0 0 0 Yes 2008.5 Supervisory Committee Mary-Jean 2005.5- Supervisor Female 52 0 0 0 Yes Wong 2008.5 2005.5- Nie Qi Supervisor Male 46 11,526 11,526 532,000 No 2008.5 2005.5- Ding Xiaofang Supervisor Male 52 0 0 398,000 No 2008.5 2005.5- Zhang Jianguo CFO Male 44 0 0 606,000 No 2008.5 Company 2005.5- Pei Jiangyuan Female 36 0 0 302,000 No Secretary 2008.5 Total 237,624 220,946 3,786,000 B. Profiles of the Directors, Supervisors and Senior Executives Chairman of the Board, Ms. Wang Fen, MBA, appointed as the Vice President of CND in 1994 and then Senior Vice President participating and taking charge of the development and management of CND's investment. Presently, President of CND. Director of the Company since March 1993, -9- 2007 Annual Report Vice Chairman of the Company from December 1998 to August 2000, and then Chairman of the Company since August 2000. Director, Mr. Fan Zhaoping, got Bachelor Degree in Economics at the State's Finance University and Master's Degree in Economics at the Research Institute of Finance Ministry of China, then worked as assistant researcher there. As an experienced financial manager, Mr. Fan took the position of Manager of the Finance Department of CND in 1991, then Manager of the Investment Department and Vice President of CND. Now Senior Vice President of CND. Appointed as the Company's Chief Financial Officer in March 1993 and resigned from the post in September 1999. Director of the Company since April 1995. Director, Mr. Yuan Yuhui, MBA, Worked in the Business Department of CND in 1989, and then Director of General Manager Office. Now Senior Vice President of CND in charge of the administration, law affairs, research and development issues of CND. Appointed as the Company Secretary in March 1993 and resigned from the post in December 2000. Director of the Company since April 1995. Director, Mr. Han Guimao, graduated from Construction Department of Tsing Hua University. Mr. Han has been working in the field of construction and engineering for over 30 years. Vice President of CND since 1994, and presently Senior Vice President of CND in charge of general planning, construction ,offshore petroleum services and logistic services, as well as construction material industry of CND. Director of the Company since May 1998. Director and General Manager, Mr. Zheng Shaoping, got Bachelor Degree in Shipping and then graduated from Postgraduate School of Dalian Shipping University with a major in Marine Trade Law. Previously, Deputy General Manager of the Company and General Manager of Shenzhen Chiwan Harbor Container Co. Ltd. Now General Manger of Chiwan Container Terminal Co., Ltd. (CCT). Appointed as Deputy General Manager of the Company in December 1998 and resigned from the post in May 2002. Appointed again as the Company’s Deputy General Manager in April 2003. Director of the Company since May 1999 and General Manager since September 2004. Director and Deputy General Manager, Mr. Zhang Ning, got Bachelor Degree in Wuhan Marine Transportation Engineering Institute with a major in Mechanical Designing. Then got Master’s Degree in Science in Wuhan Industrial University with a major in Engineering Machinery. Previously, teacher at Wuhan University of Technology. Appointed in October 1995 as Deputy Manager of the Operation Department of CCT, and then Manager of that Department, Assistant General Manager of CCT. Now Deputy General Manager of CCT. Employees' representative in the Supervisory Committee from May 1999 to December 2004. Director of the Company since May 2005 and Deputy General Manger since December 2004. Independent Director, Mr. Zhang Limin, Got Doctor’s Degree in Accounting at Tianjin Finance Institute. Presently Professor and Doctor Supervisor at Management Institute of Sun Yat-Sen University. Now, he is President of the China Audit Society, Vice President of Guangdong Audit Society, and Vice Director of the Editorial Committee of Audit Research, etc. Independent Director, Mr. Liu Ruiqi, Got Bachelor Degree in Law at People’s University of China, and presently lawyer at Liu & Liu Attorneys at Law，member of Shenzhen Arbitration Committee and Guangzhou Arbitration Committee. - 10 - 2007 Annual Report Independent Director, Mr. Ng Pock Too, Honorary Doctor of Law Degree of University of New Brunswick in Canada and attended Harvard Business School’s Programme for Management Development. Former Director of the Economic Development Board of Singapore and CEO of Trade Development Board of Singapore, Political Secretary to Prime Minister Lee Kuan Yew, CEO of Sembawang Group, a Singapore Government-owned company. Presently, President of Hamilton Sundstrand Asia Pacific Pte. Ltd. in charge of investment and planning. Chairman of Supervisory Committee, Mr. Guo Yonggang, university graduate. Previously General Manager of Shun Yip Luen Hing Company Limited, Deputy Manager of Shenzhen Industrial Products Trading Group, Vice President, CEO and Deputy Secretary of CPC of Shenzhen Commerce & Trade Investment Holding Co, General Manager and Deputy Secretary of CPC of Shenzhen Investment Holding Co., Ltd and vice Chairman of CND. Now, president and Deputy Secretary of CPC of Shenzhen Electronics Group Co., Ltd. Chairman of the Supervisory Committee of the Company since May 2006. Vice Chairman of Supervisory Committee, Mr. Yu Liming, Got Doctor’s Degree at Management Institute at Fudan University. Graduated from South China University of Technology in 1982, and Studied at Delft, IHE College and Authority of Rotterdam Port in Netherlands from 1987 to 1988. Joined China Merchants Holdings Co., Ltd. (CMH) in 1984, and presently Director of China Merchants Holdings (Hong Kong) Co., Ltd., General Manager of Business Development Department of CMG. Supervisory Committee Member, Ms. Mary-Jean Wong, university graduate. Now Director of Lucliff (Canada) Company and of Max Return Consultancy (HK) Company, Executive Director of HK Clifford Wong Investment Company Ltd., and Director of CND. Member of the Company's Supervisory Committee since May 1996. Supervisory Committee Member, Mr. Nie Qi, Master’s Degree. Previously, worked for Shekou Merchants Harbor Co., Ltd. and appointed as Assistant General Manager of the Company in 1997. Presently, Deputy General Manager of Harbor Division of the Company and General Manager of Shenzhen Chiwan Trans-Grains Terminal Co., Ltd. Supervisory Committee Member, Mr. Ding Xiaofang, Master’s Degree, previously worked at the Research and Development Department of CND, and was Deputy Manager of Earthwork Company, Deputy General Manager of Huaxin Nantong Cement Co., Ltd, of Shenzhen Chiwan Transportation Co., Ltd and of Shenzhen Chiwan Shipping & Transportation Co., Ltd (“SCST). Now General Manager of SCST. Chief Financial Officer, Mr. Zhang Jianguo, graduated from Shanxi Finance & Economics Institute, majored in Accounting and got a Bachelor’s Degree in Economics. Previously, Financial Manager of Shenzhen Chiwan Petroleum Supply Base Co., Ltd. Appointed as the Financial Manager of the Company in October 1997 and Chief Financial Officer of the Company since September 1999. Company Secretary, Ms. Pei Jiangyuan, Got Master’s Degree from Foreign Languages School of Jilin University. Company Secretary of the Company since March 2001. C. Directors and Supervisors Taking Positions in CND Position in the Name Position in CND Office Term Company - 11 - 2007 Annual Report Wang Fen Chairman of the Board President Oct.2002 till present Fan Zhaoping Director Senior Vice President Dec.1998 till present Yuan Yuhui Director Senior Vice President Oct.2002 till present Han Guimao Director Senior Vice President Oct.2002 till present Mary-Jean Wong Supervisor Director April 1995 till present Other Positions Name Company Position Chiwan Container Terminal Co., Ltd. Chairman Shenzhen Chiwan Petroleum Supply Base Co., Ltd. Director Shenzhen Nanshan Development Co., Ltd. Chairman Chiwan Wharf (Hong Kong) Limited. Chairman Wang Fen Shenzhen Chiwan Habor Container Co., Ltd. Chairman Shenzhen Chiwan International Freight Agency Co. Chairman Shenzhen Chiwan Oriental Logistics Co., Ltd. Chairman China Merchants Maritime and Logistics (Shenzhen) Ltd. Vice Chairman Shenzhen Pingnan Railway Co., Ltd Vice Chairman Chiwan Container Terminal Co., Ltd. Director Shenzhen Nantian Oil Mills Co., Ltd. Director Fan Zhaoping Shenzhen Southseas Grains Industries Limited. Director Shenzhen Chiwan Petroleum Supply Base Co., Ltd. Supervisor Yuan Yuhui None Han Guimao Chiwan Container Terminal Co., Ltd. Director Executive Shenzhen Chiwan Petroleum Supply Base Co., Ltd. Director - 12 - 2007 Annual Report Chixiao Enterprise Co.,Ltd Chairman Shenzhen Yazhi Lightsteel Housing System Limited. Chairman Shenzhen Gangchuang Building Materials Co., Ltd. Chairman Shenzhen Chixiao Component House Co., Ltd. Chairman Shenzhen Chiwan Sembawang Engineering Co., Ltd. Vice Chairman Shanghai Matsuo Steel Structure Co., Ltd. Chairman Beijing Gangchuangruibo Building Materials Co., Ltd. Chairman Lucliff (Canada) Company Director Mary-Jean Max Return (HK) Company Director Wong HK Clifford Wong Investment Co., Ltd. Director D. Annual Salary 1. Except for Independent Directors, the Company’s other members of the Board of Directors and the Supervisory Committee did not draw any remuneration, commission and others from the Company for taking the position of director or supervisor of the Company. Among which, Wang Fen, Fan Zhaoping, Yuan Yuhui and Han Guimao, four directors of the Company, received their salaries from CND, while Guo Yonggang, Yu Liming and Mary-Jean Wong, three supervisors of the Company, drew their salaries from shareholders of CND. 2. Allowance for Independent Directors was approved at the 2004 Annual Shareholders’ General Meeting as RMB80,000/year ( tax included ) for each person. 3. All the senior management staff of the Company are appointed by the Board of Directors. The Board set up the Company’s business and financial budget for each year and sign KPI contracts accordingly with senior management staff. The Board then grants rewards and punishment to senior management staff according to their respective performance during the year. E. Directors, Supervisor and Senior Management Staff wasn’t changed during the Reporting Period change F. Work Force as at 31 December 2007 As at 31 December 2007, the Company had 2,140 employees, with 847 being university graduates, 78 financial clerks, 74 sales persons, 290 technicians, 90 management personnel, and the others being staff for production. The Company needn’t to pay remuneration or any fees for retired staff. PART V CORPORATE GOVERNANCE A. Details of the Special Events for Corporate Governance - 13 - 2007 Annual Report During the reporting period, in accordance with the requirements of the Notice on Matters concerning Carrying out a Special Campaign to Strengthen the Corporate Governance of Listed Companies (Zheng Jian Gong Si Zi [2007] No. 28) promulgated by the CSRC, the Company carried out the Special Campaign for corporate governance in line with the principle of seeking truth from facts with effect from April 2007. A summary of each phrase of the Special Campaign is set out below: Preparation phase (Before 30 April 2007): The Company disclosed such documents relating to corporate governance as the Articles of Association of the Company and relevant detailed working rules on the website of the Stock Exchange and disclosed its phone numbers and established a platform on the Company's website for the investors to submit their recommendations. The Company also set up a leadership team for the purpose of the Special Campaign. Self-inspection phase (1 May to 30 May): As required by the Company, each functional department was responsible for identifying the problems and deficiencies in respect of corporate governance structure in accordance with the requirements of the CSRC on a case-by-case basis, analyzing the exact reasons for such problems, formulating specific rectification measures and schedule and preparing and submitting the self-inspection report and rectification plan according to the format guidance issued by Shenzhen Securities Regulatory Bureau. Public comments phase (June to September): The Company received the advice and recommendations from investors and the public on the corporate governance and rectification plan of the Company via telephone and network platform, accepted the thorough inspection by the Shenzhen Securities Regulatory Bureau, and received comprehensive evaluation and rectification recommendations. Rectification and improvement phase (October): Taking into consideration the rectification recommendations from Shenzhen Securities Regulatory Bureau and the Shenzhen Stock Exchange as well as the comments and suggestions from investors and the public, the Company defined the rectification responsibilities, carried out the rectification and improved its corporate governance. The Sixth Session of the Fifth Board of Directors was held on 23 August 2007, at which the Self- inspection Report and Rectification Plan for Corporate Governance of the Company was reviewed and approved. On 11 September 2007, the Company accepted the on-spot inspection relating to the special surveys for corporate governance conducted by the Shenzhen Securities Regulatory Bureau of the CSRC, and took rectificative measures according to the rectification recommendations on a case-by-case basis thereafter. Rectifications were made by the Company in respect of the deficiencies in relation to information disclosure, the Company's independence, institutionalization and the operation of Board committees as set out in the recommendation letter issued by the Shenzhen Securities Regulatory Bureau . In compliance with the Code on Corporate Governance Practices and the Articles of Association, the Company duly amended the Management Rules on Disclosure of Corporate Information, Rules on Decision-making for Connected Transactions, Management Rules on Shares of the Company held by the Directors, Supervisors and Senior Management of the Company and the Changes therein and Management Rules on Raised Proceeds of the Company. The Seventh Special Session of the Fifth Board of Directors for 2007 was held on 25 October 2007, at which Rectification Report for Corporate Governance was reviewed and approved, which is disclosed in the appointed media on 27 October. Additionally, Rules on Intra Audit of the Company and Rules on Management of External Investment of the Company was respectively reviewed and approved at the Seventh Session of the Fifth Board of Directors on 8 April 2008. - 14 - 2007 Annual Report The implementation of the special campaign for corporate governance in listed companies helps the Company to further reinforce the construction of the Company’s governance and improve the regulatory operating level. As recognizing the problems and the weakness exiting in the Company through the said special campaign for corporate governance, we timely set down the specific rectification measures which would be implemented properly. As a result, Directors, the Supervisors and Senior Management Staff of the Company learnt hard at the securities laws and regulations to reinforce the management base continually. With the help of the Supervision Department and the vast investors, we would strive for efficiency, transfer the corporate governance of the Company towards the governance mechanism with efficiency, standardization and science, and safeguard the interest of the Company and the whole shareholders to realize the sustainable development of the Company. B. General information of Corporate Governance during the reporting period In strictly implementing the PRC’s Company Law, the Securities Law as well as other laws and regulations issued by China Securities Regulatory Commission (“CSRC”), the Company keeps on improving the Company’s corporate governance by setting up systems for modern enterprise so as to standardize the operation of the Company. Details are set out as follows: 1. Shareholders and general meeting The Company ensures that all the shareholders, especially minority shareholders, are equal and could enjoy their full rights. The Company called and held shareholders’ general meeting strictly in compliance with the “Rules for Shareholders’ General Meeting”. 2. Relationship between the controlling shareholder and the Company Controlling shareholder of the Company acted in line with rules during the reporting year and did not intervene the decisions or operations of the Company directly or indirectly in exceeding the authority of the shareholders’ general meeting. 3. Directors and the Board of Directors The Company elected directors strictly according to the Articles of Association. Numbers and qualifications of Directors were in accordance with relevant laws and regulations; all Directors attended the Board meetings and shareholders’ general meeting in a positive and responsible manner, participated enthusiastically relevant training so as to know better about laws and regulations as well as rights and obligations of Directors. The Company set up the Audit Committee as approved by the first special shareholders’ meeting for 2004 and the Nomination, Remuneration and Evaluation Committee and the Strategic Committee of the Board as approved by the Annual General Meeting for 2005. 4. Supervisors and the Supervisory Committee Numbers and qualification of the members of the Supervisory Committee were in compliance with requirements of laws and regulations. The supervisors performed seriously their duties, took responsible attitudes to all the shareholders and supervised the financial affairs as well as the duties performed by the Company’s Directors, managers and other senior executives in terms of compliance with the laws and regulations. 5. Stakeholders - 15 - 2007 Annual Report The Company had been fully respecting and safeguarding the legal rights and interests of the banks and other creditors, staff, consumers and other stakeholders so as to develop the Company in a consistent and healthy way. 6. Information disclosure The Company authorized the Secretary of the Board to take charge of information disclosure, and the Chairman as well as related Directors to take charge of receiving visits and inquiries of the shareholders. The Company disclosed relevant information in a real, accurate, complete and timely way in strictly observing the law, regulations and the Articles of Association so as to ensure all the shareholders having equal opportunity to obtain the information. Ever since its establishment, the Company has been operating in a standard way according to the requirements of the Company Law and other laws and regulations. The Company will keep on doing so in accordance with the “Corporate Governance Principle for Listed Companies” issued by CSRC and Finance Ministry of the State on 7 January 2002 so as to safeguard the interests of the shareholders and relevant beneficiaries. C. Non-compliance of corporate governance standards by the Company As China Nanshan Development (Group) Incorporation (“CND”), a substantial shareholder of the Company, holds 57.51% of the shares of the Company, it is required to consolidate the Company’s financial statements in its accounts under the Enterprise Accounting Standard No. 33 - Consolidated Financial Statements. Accordingly, CND requires the Company’s Financial Department to submit our financial statements on or about the tenth day every month for the purpose of the preparation of its consolidated financial statements. At the Fifth Session of the Fifth Board of Directors of the Company held on 17 April 2007, the Report Concerning the Submission of Monthly Financial Statements to the Substantial Shareholder was reviewed and approved, and the Company agreed that its Financial Department shall provide monthly financial statements to CND and such information shall be delivered to the Shenzhen Stock Exchange for records. On 25 August 2007, the Company disclosed the details of submitting the financial statements to substantial shareholders in the Self-inspection Report and Rectification Plan for Corporate Governance in 2007 of Shenzhen Chiwan Wharf Holding Co., Ltd.. In compliance with the requirements of the Shenzhen Securities Regulatory Bureau, the Company has delivered “Undisclosed Information Provided by the Company to its Substantial Shareholders and Actual Controllers” to the Shenzhen Securities Regulatory Bureau before the tenth day every month from September 2007 to now, including the name list of relevant parties and relevant information. The above-mentioned matters did not affect the Company’s independence. In the future, the Company will disclose the relevant information in due course at the request of the regulatory authorities. D. Performance of Independent Directors The Company has three independent directors. Number of the Company’s Independent Directors complies with the stipulations of “Guiding Lines on Setting up Independent Director System in Listed Companies” issued by CSRC, which says “independent directors should at least take one third among all the members of the Board of Directors in Listed Companies. During the reporting period, Independent Director Mr. Zhang Limin should attend nine Board meetings and indeed attended eight meetings. Mr. Zhang Limin did not attend the Sixth Session of the Fifth Board of Directors held on 23 August 2007 due to business. He had reviewed the - 16 - 2007 Annual Report documents before the meeting and had no objections, and entrusted Mr. Liu Ruiqi as his proxy to attend the meeting and express opinions on his behalf. Independent Director Mr. Liu Ruiqi should attend and indeed attended nine meetings. Independent Director Mr. Ng Pock Too should attend and indeed attended nine meetings. During the reporting period, Independent Directors actively participated in the discussion of reports reviewed at board meetings and other issues of the Company, and put up constructive suggestions, which had been endorsed by the Company. They carefully reviewed and issued independent opinions in written form on significant events such as significant related-party transactions. Independent Directors seriously performed their duties, monitored the Company’s business and operation consistently, actively protected the minority shareholder’s rights, thus played significant roles in the scientific decision-making by the Board of Directors. E. Independence from the Controlling Shareholder The Company is absolutely independent in personnel, assets, finance, organization and business from its controlling shareholder. Details are set out as follows. The Company has basically separated its staff from its controlling shareholder. Senior management staff of the Company do not take positions at its ultimate shareholding company. No financial clerks took corresponding jobs at the associated companies. The Company possesses its own self-governed assets and independent operation system. Assets of the controlling shareholder in the Company (land-use rights and fixed assets such as property and large equipment, etc. being included) was converted through assets evaluation into stock of shares at the latter half of 1992, which the Company has full rights to hold, use and dispose whatsoever. The Company has set up its own financial department as well as independent normative accounting system and the financial management system on its subsidiary companies. The Company has its own bank accounts and does not share the same bank account with its controlling shareholder. The Company has been paying tax in accordance with the laws and regulations on its own behalf. Management of the Company on its human resources and staff salary is absolutely independent. Controlling shareholder has handed its wharf-related business thoroughly to the Company to operate and does not engage in the same market as the Company does, thus has no competition with the Company. F. Self-evaluation of Internal Control 1. Summary of Internal Control of the Company During the reporting period, according to the requirements of the Notice on Matters Concerning Carrying out a Special Campaign to Strengthen the Corporate Governance of Listed Companies (Zheng Jian Gong Si Zi [2007] No. 28) promulgated by the CSRC and the Guidelines for the Internal Control of Listed Companies issued by the Shenzhen Stock Exchange, the Company made active self-inspection and rectification in compliance with the Special Campaign for the Corporate Governance of Listed Companies, focused on the improvement and strengthening of the internal control of the Company and fully addressed the establishment and improvement, thorough implementation and effective control of the rules relating to internal control. a. The Company has formulated the Rules of Procedure for General Meetings, Rules of Procedure for Board Meetings, Working Rules for Independent Directors, Detailed Working Rules for the - 17 - 2007 Annual Report Audit Committee of the Board, Detailed Working Rules for the Nomination, Remuneration and Evaluation Committees of the Board, Detailed Working Rules for the Strategic Committee of the Board, Rules of Procedure for the Supervisory Committee, Detailed Working Rules for General Manager, Management Rules on Investor Relations and Rules on Internal Control. On 25 October 2007, subject to approval of the Seventh Special Session of the Fifth Board of Directors in 2007, the Company agreed to amend the Management Rules on Information Disclosure and formulate the Rules on Decision-making for Connected Transactions, Management Rules on the Shares held by Directors, Supervisors and Senior Management and the Changes therein, Management Rules on Raised Funds. On 8 April 2008, the Seventh Session of the Fifth Board of Directors reviewed and approved the Rules on Internal Audit and Management Rules on External Investment. The above management rules together with the Articles of Association of the Company constitute the Company's internal control system, with the Articles of Association as the general principles and all special internal control rules as the bases. b. In view of the comments from the investors and the public as well as the on-site inspection of the special campaign for corporate governance by the Shenzhen Securities Regulatory Bureau of CRSC, the Company has proposed rectification measures in respect of corporate governance of the Company, including internal control, and has made rectifications as required. c. The Company established a leadership team responsible for the special campaign of corporate governance, with the Chairman of the Board acting as the team leader. The leadership was responsible for carrying out various works relating to internal control in compliance with relevant requirements of Code on Corporate Governance. The Supervisory Committee and the independent directors performed their respective duties to supervise the internal control activities of the Company. d. The Company has two internal auditors. Under the leadership of the Board of Directors and its Audit Committee, the internal auditors independently supervised and monitored the implementation of internal control rules, evaluated the scientific character and soundness of internal control and put forward recommendations for enhancing the internal control in a timely manner. - 18 - 2007 Annual Report 2. Emphasis of Internal Control of the Company a. Shareholding structure and ownership proportion of subsidiaries Shenzhen Chiwan Wharf Holdings Limited Shenzhen Cyber-Harbor Network Co., Ltd China Ocean Shipping Agency Shenzhen Ltd Shenzhen Merchants Maritime&Logistics Shenzhen Ltd Media Port Investments Limited 50% Shenzhen Chiwan Harbor Container Co., Ltd Shenzhen Chiwan Terminal Co., Ltd 100% Shenzhen Chiwan Trans-Grains Terminal Ltd Shenzhen Chiwan Shipping&Transportation Co., Ltd Shenzhen Chiwan Transportation Co., Ltd Chiwan Wharf (Hong Kong) Ltd Chiwan Shipping (Hong Kong) Ltd Shenzhen Chiwan International Freight Agency Co., Ltd Shenzhen Chiwan Oriental Logistics Co., Ltd Dongguan Chiwan Wharf Co., Ltd Crossalan Investments Limited Chiwan Container Terminal Co., Ltd Shenzhen Mawan Wharf Co., Ltd Shenzhen Mawan Port Service Co., Ltd 60% Shenzhen Mawan Terminals Co., Ltd 100% 100% 100% 100% 100% 40% 100% 100% 100% 100% 100% 55% 15% 60% 60% 37.5% 60% 100% b. Internal control of subsidiaries Pursuant to Rules on Internal Control, the Company adopts a flat management structure for its wholly-owned and holding subsidiaries, whereby the functional departments of the Company provides professional guidance, supervision and support to their counterparts in our subsidiaries. All wholly-owned and holding subsidiaries must implement the various rules and regulations promulgated by the Company and operate on the basis of the Company’s overall business plan to ensure the highly centralized operation and management of the Company. Having regard to the Guidelines for Internal Control promulgated by the Shenzhen Stock Exchange, the Company maintained strict, sufficient and effective management and control over its wholly-owned and holding subsidiaries. No violation of the Guidelines for Internal Control and Rules on Internal Control of the Company has been identified. c. Internal control of related party Transactions The Company established and updated the Rules on Decision-making for Connected Transactions which set out details provisions in respect of the principles of connected transactions, reltaed parties, relationship with the related parties, decision-making and disclosure procedures of connected transactions. The Company submitted the “Report on Daily Connected Transactions for the Current Year” to the Board of Directors at the beginning of every year based on the Company's business development. The connected transactions entered into each year are in full compliance with the provisions of the Management Rules on Connected Transactions and are subject to prior review by the independent directors, who will express their independent opinion in this regard.Having regard to the Guidelines for Internal Control promulgated by the Shenzhen Stock - 19 - 2007 Annual Report Exchange, the Company maintained strict, sufficient and effective internal control over its connected transactions. No violation of the Guidelines for Internal Control and Rules on Internal Control of the Company has been identified. d. Internal control of guarantees provided The Articles of Association of the Company provides for the scope and performance procedures of external guarantees. During the reporting period, no external guarantee was provided by the Company. Having regard to the Guidelines for Internal Control promulgated by the Shenzhen Stock Exchange, the Company maintained strict, sufficient and effective internal control over its external guarantees. No violation of the Guidelines for Internal Control and Rules on Internal Control of the Company has been identified. e. Internal control of proceeds utilization The Company established and updated the Management Rules on the Utilization of Raised Funds which set out specific provisions in respect of the management and utilization of raised funds and information disclosure. During the reporting period, there was no use of raised funds by the Company. Having regard to the Guidelines for Internal Control promulgated by the Shenzhen Stock Exchange, the Company maintained strict, sufficient and effective internal control over its use of raised funds. No violation of the Guidelines for Internal Control and Rules on Internal Control of the Company has been identified. f. Internal control of significant investments of the Company The Company established and updated the Management Rules on External Investments which set out specific provisions in respect of the basic principles of external investments, approval authority for investments, examination and approval procedures for investments and the research and assessment of investments. Having regard to the Guidelines for Internal Control promulgated by the Shenzhen Stock Exchange, the Company maintained strict, sufficient and effective internal control over its significant investments. No violation of the Guidelines for Internal Control and Rules on Internal Control of the Company has been identified. g. Internal control of information disclosure The Company established and updated the Management Rules on Information Disclosure to reliaze full and effective control of the public information disclosure of the Company. This ensures the timely, accurate, complete and fair disclosure of the Company's information. Having regard to the Guidelines for Internal Control promulgated by the Shenzhen Stock Exchange, the Company maintained strict, sufficient and effective internal control over its information disclosure. No violation of the Guidelines for Internal Control and Rules on Internal Control of the Company has been identified. 3. Problems relating to the internal control of the Company and rectification plan therefore and the overall evaluation of internal control The implementation of the special campaign for corporate governance in listed companies helps the Company to further reinforce the construction of the Company’s governance and improve the regulatory operating level. As recognizing the problems and the weakness exiting in the Company through the said special campaign for corporate governance, we timely set down the specific rectification measures which would be implemented properly. As a result, Directors, the Supervisors and Senior Management Staff of the Company learnt hard at the securities laws and - 20 - 2007 Annual Report regulations to reinforce the management base continually. With the help of the Supervision Department and the vast investors, we would strive for efficiency, transfer the corporate governance of the Company towards the governance mechanism with efficiency, standardization and science, and safeguard the interest of the Company and the whole shareholders to realize the sustainable development of the Company. 4. Opinions about self-evaluation on the internal control expressed by the Supervisory Committee of the Company Pursuant to the relevant provisions of the Guidelines for Internal Control of Listed Companies and the Circular on the Preparation of the 2007 Annual Report of Listed Companies issued by the Shenzhen Stock Exchange, the Supervisory Committee expressed the following opinions on the self-evaluation of the internal control of the Company: a. According to the relevant requirements of the CSRC and Shenzhen Stock Exchange and based on its actual conditions, the Company established and updated various rules for internal control covering all departments of the Company in line with the basic principle of the internal control, which ensures the normal operation of our businesses and safeguard the safety and integrity of the Company’s assets. b. The integral internal control structure and the existence of an internal audit department and the availability of sufficient staff ensured the effective implementation and supervision of the main activities of internal control of the Company. c. In 2007, no violation of the Guidelines for Internal Control of Listed Companies and Rules on Internal Control of the Company issued by the Shenzhen Stock Exchange was committed by the Company. In view of the above, the Supervisory Committee considered that the self-evaluation of internal control of the Company was comprehensive, true and accurate and reflected the actual status of the Company's internal control. 5. Opinions about self–evaluation on the internal control expressed by the Independent Directors of the Company During the reporting period, the Board of Directors amended and established a series of management rules in respect of the internal control of the Company, which were in compliance with the relevant PRC laws and regulations and the requirements of regulatory authorities. The main activities of the internal control of the Company were carried out in accordance with the regulations on the internal control of the Company, and the Company has established and updated specific rules in respect of the internal control over subsidiaries, connected transactions, external guarantees, utilization of raised funds, significant investments and information disclosure, so as to ensure the normal operation of the Company’s management. In view of the above, the Independent Directors considered that the Company's internal control are reasonable and effective and ensures the normal operation of the Company’s businesses. The self- evaluation of the internal control of the Company is in line with the actual status of the internal control of the Company. G. Performance Evaluation and Incentive Mechanism for Senior Management Staff (see D. 3 of Part IV for details) - 21 - 2007 Annual Report PART VI ANNUAL GENERAL MEETING One shareholders’ general meeting was held during the year, i.e. Annual General Meeting for 2006. The said meeting was held on 11 May 2007 in the conference room on 16/F, Chiwan Petroleum Building, Shenzhen. Notice of the said meeting was released in Securities Times and Ta Kung Pao on 19 April 2007 (Announcement No.: 2007-009). Announcement of the resolutions made at the meeting was disclosed in Securities Times and Ta Kung Pao on 12 May 2007 (Announcement No.: 2007-014). PART VII REPORT OF THE BOARD OF DIRECTORS A. Business review for the reporting period 1. Overall business performance during the reporting period The Company is principally engaged in the handling, warehousing and transportation of containers and dry bulk cargoes, as well as the provision of related services. In 2007, GDP and the foreign trade in the Pearl River Delta developed at a fast pace, contributing to the continued stable growth in container throughput of Shenzhen Port. During the year, the Company achieved a year-on-year increase of 14.1% in container throughput totaling 6.003 million TEUs, among which 4.359 million TEUs were handled at Chiwan Port, an increasing of 2.0% compared with that of 2006, while 1.644 million TEUs at Mawan Port, an increase of 66.2%. The Company had a 28.5% market share in terms of container handling market in Shenzhen, the same level as in 2006. As for the bulk cargo business, throughput for 2007 decreased by 6.1% to 7.06 million tons due to the decrease in fertilizers import and international transshipment, which resulted from rocketing shipping price for international bulk cargo and increasing supply of domestic fertilizers as result of expansion of fertilizer production capacity in China and the increase in export tax for fertilizers. The Company has an approximately 20% market share among three major bulk terminals in Shenzhen . 10.8 % up over 2006, total throughput of 58.94 million tons was recorded for 2007, accounting for 29.6% of the overall throughput at Shenzhen Port, down from 30.2% for 2006. Business highlights of the Company for the past three years is set out as follows. Business Data 2007 2006 2005 Total throughput (million ton) 58.94 53.19 42.18 Among which：Container throughput (million TEU) 6.003 5.262 4.170 Chiwan port 4.359 4.273 3.835 Mawan Port 1.644 0.989 0.335 Throughput of bulk cargo (million ton) 7.06 7.52 6.76 Trucking volume (million TEU.km) 5.97 5.40 5.08 Hours charged for tow trucks (million hours) 1.893 1.509 1.191 - 22 - 2007 Annual Report Hours charged for tugboat 32,313 31,856 27,188 Year-on-year changes in revenue, operating profit and net profit attributable to the shareholders of the Company (unit: RMB) Item 2007 2006 +/- YoY Reason 1,948,638,42 Revenue 2,003,562,530 2.82% slight increase in throughput 3 1,040,422,12 Operating profit 1,045,573,041 0.50% - 8 significant increase in net profit of associated companies; Net profit less income tax as a result of favorable attributable to the 663,872,167 626,836,148 5.91% tax policy granted with effect from the equity holders of current period to the subsidiaries' the company projects which were constructed and put into operation in phases During the reporting period, there was no material change in business mix-up and profit breakdown of the Company. 2. Core business and performance a. Breakdown of operating income and operating profit (unit: RMB) Operating Percentage Operating Percentage Core business Industry income (％) profit (％) Cargo handling Cargo handling 1,846,201,686 89.34 894,901,965 85.59 Land transportation Transportation 141,743,500 6.86 23,324,339 2.23 Related Tugboat services 71,010,868 3.44 31,195,578 2.98 Shipping Agency Agency 7,483,197 0.36 2,586,153 0.25 Subtotal 2,066,439,251 100 952,008,035 91.05 Offset among the business segments 62,876,721 Total 2,003,562,530 952,008,035 b. Indicators relating to core business which accounts for more than 10% of operating income and operating profit (unit: RMB) Operating Operating Business YoY +/- Operating cost YoY +/- YoY +/- income profit margin Cargo handling 1,846,201,686 2.00% 715,077,564 7.49% 61.27% -1.97% - 23 - 2007 Annual Report 3．Major customers Sales to (Revenue from) the Company's top five customers totaled RMB1,368,051,791, accounting for 68％ of the Company’s operating income. 4. Financial status for the reporting period a. Material year-on-year changes in assets mix-up and reasons therefore To total To total Year-on- assets as at assets as at year Reason the end of the end of change 2007 2006 Funds raised at the end of the period for the Currency assets 14.32％ 3.66% 10.66% payment of good faith deposit for proposed projects; Allotment for fixed assets impairment and Fixed assets 41.65％ 53.40% -11.75% surplus of depreciation over new assets Dividends payable 5.42％ 0% 5.42% Declaration of cash dividends by non-wholly Minority interest 10.24％ 17.57% -7.33% owned subsidiaries at the end of the year b. Measurement model adopted for major assets Cost approach was adopted for measurement of the Company's assets, except for available-for-sale financial assets and hedging instruments for which fair value approach was adopted. Balance Impact on net profit Impact on equity at the Balance of the current period holders’ equity Items beginning at the end of Changes attributable to attributable to of the the period equity holders of the the Company period Company Hedging － 39,459,166 39,459,166 － 20,187,704 instruments (1) Available-for-sale － 10,520,000 10,520,000 － 7,708,000 financial assets (2) Total － 49,979,166 49,979,166 － 27,895,704 (1) The hedging instruments represent the General Agreement on Forward Settlement of Foreign Exchange entered into by and between Chiwan Container Terminal Co., Ltd. ("CCT", a subsidiary of the Company) and the Bank of China Shenzhen Branch Sehkou Sub-branch in 2007 with a view to minimizing foreign exchange risks, and the Application for Forward Settlement of Foreign Exchange accepted by the Bank of China with an option to be transacted between September 2007 and August 2008. Based on the market quotation of the Bank of China Shekou Sub-branch on the last trading day in 2007, i.e. 29 December 2007, the fair value of the forward contract was determined to be RMB39,459,166. - 24 - 2007 Annual Report (2) The equity division reform of Jiangsu Jiangsu Expressway Company Limited was completed on 16 May 2006. On 16 May 2007, the 1,000,000 corporate shares in Jiangsu Jiangsu Expressway Company Limited held by the Company became negotiable. The investment cost of RMB1,120,000 was subsequently transferred by the Company from "long-term equity investments - other long-term equity investments" to available-for-sale financial assets. Based on the closing price quoted on the Shanghai Stock Exchange on the last trading day in 2007, the market capitalization of the shares in Jiangsu Expressway Company Limited held by the Company amounted to RMB10,520,000 as at 31 December 2007. c. Material year-on-year changes in financial data and reasons therefore 2007 2006 +/- (%) Reasons Exchange gains on foreign currency liabilities Finance cost 28,367,266 51,050,121 -44.43 held by the Company at the end of the year as a result of appreciation of RMB Impairment provision made for related assets due Asset to proposed relocation of part of the bulk cargo 60,937,679 -181,047 33758.49 impairment loss operations to Machong Port in Dongguan from 2009 to 2010 Investment Significant increase in net profit of the associated 128,090,386 62,094,689 106.28 gain companies Less income tax as a result of favorable tax policy granted with effect from the current Income tax 50,267,237 81,648,433 -38.43 period to the subsidiaries' projects which were constructed and put into operation in phases d. Composition of cash flows 2007 2006 +/-(%) Reason Net cash flows from 1,197,492,986 1,146,012,470 4.49 - operating activities Investment in Machong, purchase of Net cash flows from - -179,092,950 -139.32 equipment and additional capital contribution investing activities 428,609,285 to associated companies Increase in borrowings and the decrease in Net cash flows from both dividend payment by the Company and -152,753,394 -939,169,861 83.74 financing activities in dividend payment by non-wholly owned subsidiaries in 2007 compared with last year Effect of exchange rate fluctuation on cash and -3,065,644 -2,483,988 -23.42 - cash equivalents Net increase in cash and 613,064,663 25,265,671 2326.47 - cash equivalents - 25 - 2007 Annual Report e. Differences between cash flow from operating activities and net profit of the Company for the reporting period 2007 Net profit 992,504,204 Add: Provisions for assets impairment 60,937,679 Depreciation of fixed assets 190,560,676 Amortization of intangible assets 39,090,252 Amortization of long-term prepaid expenses 24,986,895 Loss/(Gain) on disposal of fixed assets, intangible assets and other long-term assets 793,389 Loss on scrapping of fixed assets 2,790,329 Finance expense 2,804,672 Investment income (128,090,386) Increase in deferred income tax assets (17,749,162) Increase in inventories (1,025,887) Decrease/(increase) in operating receivables 13,496,275 Increase/(decrease) in operating payables 16,394,050 Net cash flows from operating activities 1,197,492,986 5. Results of wholly-owned subsidiaries and joint ventures a. Chiwan Container Terminal Co., Ltd. (CCT) The Company holds 55% equity interests directly and indirectly in CCT. With a registered capital of USD95.3 million, CCT is engaged mainly in handling containers, especially in accommodating international container lines. CCT achieved a container throughput of 3.60 million TEUs, 1.5% up compared with 2006. As at 31 December 2007, total assets of CCT was RMB 2,884,522,308 and net assets was RMB 1,242,925,029. b. Shenzhen Chiwan Harbor Container Co. Ltd. (CHCC) The Company holds 100% equity interests directly and indirectly in CHCC. With a registered capital of RMB108.2 million, CHCC is now mainly engaged in handling containers, especially in the accommodation service for transshipment container barges for foreign trade and for medium or small sized international liners as well. During the reporting year, CHCC achieved a container throughput of 486,000 TEUs, 1.6% up compared with 2006. As at 31 December 2007, total assets of CHCC was RMB558,200,210 and net assets was RMB234,054,576. c. Harbor Division Being an independent accounting unit controlled by the Company but not an enterprise, Harbor Division is engaged in handling and warehousing of imported fertilizer. During the reporting period, throughput reached 3.4 million tons, 18.3% down compared with 2006, of which throughput of bulk and general cargo reached 2.85 million tons, throughput of empty containers reached - 26 - 2007 Annual Report 273,000 TEUs. As at 31 December 2007, total assets of Harbor Division was RMB313,180,091 and net assets was RMB 295,169,398. d. Shenzhen Chiwan Terminal Co., Ltd The Company holds 100% equity interests directly and indirectly in this company. With a registered capital of RMB50 million, the company is engaged mainly in the handling and stacking of grains. During the reporting period, the company achieved a throughput of 4.21 million tons, 9.4% up compared with 2006. As at 31 December 2007, total assets of the company was RMB140,863,075 and net assets was RMB127,011,655. e. Shenzhen Chiwan Trans-Grains Terminal Limited (SCTGT) The Company holds 100% equity interests in SCTGT directly and indirectly. With a registered capital of RMB45 million, SCTGT is principally engaged in the loading and unloading, warehousing and packaging of grains and provides related service for the loading and unloading and storage of grains by Shenzhen Chiwan Terminal Co., Ltd. During the reporting period, stacking volume of goods reached 29.53 million tons day, representing a decrease of 11.1% compared with that of the previous period. As at 31 December 2007, SCTGT's total assets was RMB43,948,397 and net assets was RMB 7,418,729. f. Chiwan Wharf (Hong Kong) Ltd. (CWHK) Registered in Hong Kong with a registered capital of HKD1million and as a wholly owned subsidiary of the Company, CWHK is an investment holding company which holds 4% equity interests in CCT, 40% equity interests in CHCC, 25% equity interests in SCTC, 40% equity interests in SCST, 25% equity interests in SCTGT, 100% equity interests in Chiwan Shipping (Hong Kong) Ltd. and 50% equity interests in Media Port Investment Limited respectively. As at 31 December 2007, total assets of CWHK was RMB658,690,447 and net assets was RMB 424,188,626. As approved by Shenzhen Stock Exchange, disclosure of operating income, operating profit and net profit of the above-mentioned six subsidiaries for the year 2007 will be consolidated. revenue, operating profit and net profit attributable to equity holders of the said six subsidiaries for 2007 were RMB2,014,899,951, RMB1,055,084,865 and RMB678,921,067 respectively. g. Shenzhen Chiwan Transportation Co., Ltd. (SCTC) The Company holds 100% equity interests in SCTC directly and indirectly . With a registered capital of RMB15 million, SCTC is principally engaged in tow-truck services and road transportation services. During the reporting period, 1.893 million hours of tow truck operations were recorded, representing an increase of 25.4% compared with that of the previous period. Trucking volume reached 5.97 million TEUs.km, representing an increase of 10.6% compared with that of the previous period. As at 31 December 2007, SCTC's total assets was RMB107,811,997, net assets RMB32,421,057, revenue RMB141,743,500, operating profit RMB 23,350,059, and net profit RMB 19,975,131 respectively. h. Shenzhen Chiwan Shipping & Transportation Co., Ltd. (SCST) The Company holds 100% equity interests in SCST directly and indirectly. With a registered capital of RMB6 million, SCST specializes in provision of tugboat services. During the reporting period, 32,313 hours were charged for tugboat services, representing an increase of 1.5% compared with - 27 - 2007 Annual Report that of the previous period. As at 31 December 2007, SCST's total assets was RMB122,126,325, net assets RMB 30,576,386, operating income RMB71,010,868, revenue RMB31,195,578 and net profit RMB 26,190,881. 6. Investments during the reporting period a. Utilization of proceeds No funds were raised by the Company during the reporting period. Recently raised funds had been fully utilized by the end of 1996. b. Other investments During the reporting period, capital expenditure increased by RMB246.45 million to RMB437.29 million, 129% up over 2006, among which (1) Investments in Chiwan port reached RMB211.83 million. Two quay cranes and six forklifts were delivered early 2008. 5000-horsepower tugboat is expected to be delivered and put into operation in August 2008. (2) Investments in Machong Project in Dongguan reached RMB185.46 million. Progress of this project dropped behind the schedule due to unforeseeable factors. (3) Additional capital contribution to China Merchants Maritime & Logistics (Shenzhen) Ltd., in which the Company holds 40% equity interests, totaled RMB40 million. B. Reason for and impact of changes in significant accounting estimates Part of the Company's bulk cargo handling business will be relocated to Machong Port in Dongguan from 2009 to 2010. In order to provide more reliable and appropriate accounting information relating to the Company's financial status, it was resolved at the first extraordinary meeting of the Board of Directors in 2008 that the depreciation period for the assets thus involved was changed to the end of 2010 with effect from 1 October 2007. Upon adoption of the above-mentioned changes in accounting estimates, the owners' equity attributable to shareholders of the Company and net profit for 2007 decreased by RMB5.33 million. The owners' equity attributable to shareholders of the Company and net profit for each year from 2008 to 2010 is expected to decrease by RMB6.35 million. C. Outlook for the future development of the Company 1. Development trend and competition status of the industry in which the Company is engaged Global economy is slowing down with coming up of more and more uncertainties. Moreover, appreciation of RMB, lower export tax rebate rate and rising costs of land, energy and labor nationwide, all contribute to the pressure on further growth of China's foreign trade volume. Increase in container throughput shall slow down in 2008. While container vessels are getting larger, more and more containers begin to flow to hub ports. Container handling business in Shenzhen Port will continue to grow, although at a lower growth rate. Increase of container throughput will be substantial. - 28 - 2007 Annual Report The existing container berths of the Company are fully occupied. Due to a shortage of resources, the growth of handling capacities will be limited. With the commencement of operation of new container berths in major neighboring ports during the year, a net increase of some 3,000,000 TEUs of handling capacity will be recorded in Shenzhen Port. The growth in handling capacity is expected to outpace the growth of throughput. Due to the lower average operation intensity of container berths in Shenzhen, container terminal business of the Company will face fierce competition. The bulk cargo business developed by the three ports in the western part of Shenzhen in view of their respective strengths remained stable generally. Due to increase in output of fertilizers in China and implementation of national policies which aim to limit the export of high polluting, high energy-consuming and resource-intensive products, import of compound fertilizers by the Company trends to be diminished and the import of kalium fertilizers will be relatively stable. Bulk grain handling business will grow with slight increase of grains import in the Pearl River Delta. The Company’s bulk cargo business will remain steady. 2. Business Plan for 2008 The Company will continue to enhance the core competitiveness of its businesses, optimize its business structure, improve its utilization rate of resources and enhance cost control , pay attention to the impact of price change in production elements on the Company's costs, adopt advanced technology to save energy and reduce consumption and strive to realize steady growth of the Company’s earnings. a. Container handling business The Company will continue to optimize its operating processes, improve its overall efficiency, maximize the potential of existing available resources and optimize the business structure, thus ensure further growth of throughput and operation results. b. Bulk cargo handling business The Company will continue to maintain satisfactory performance of its fertilizer and grains handling business, keep its bulk cargo handling business as stable, speed up the construction of Machong Project in Dongguan and accelerate the preparation for commencement of operation so as to ensure the completion of construction and operation of the first two berths of Phase I of the project in 2009. c. Related services The Company intends to focus on the development of trucking and tugboat businesses to support and safeguard terminal business with safe, excellent and efficient services and improve the Company’s overall competitiveness. 3. Capital requirements and expenditure plan for 2008 To implement our future development strategies and business goals, a capital expenditure of RMB1,000 million is planned for 2008, of which RMB200 million will be invested in fixed assets at Chiwan Port and RMB800 million will be invested in Machong Project in Dongguan. The above capital expenditures will be mainly funded by cash inflows form operating activities of the Company. - 29 - 2007 Annual Report D. Daily operations of the Board 1. Board meetings and resolutions The Board held a total of nine meetings (including two periodic meetings and seven extraordinary meetings) during the year. Details of the meetings are set out as follows: a. On 26 February 2007, the First Special Session of the Fifth Board of Directors for 2007 was held by way of telecommunication. “Report on Fixed Assets Impairment Provision for the Related Assets in Chiwan relating to Subway Construction was approved unanimously and a total fixed assets impairment provision of RMB9,421,338.02 for 2006 was approved. b. On 19 March 2007, the Second Special Session of the Fifth Board of Directors for 2007 was held by way of telecommunication. “Report on the Revision of Estimated Useful Life and Estimated Net Residual Value relating to Subway Construction” was approved unanimously. It was resolved that the estimated remaining useful lives and estimated residual values of the ten items of assets involved in the subway-related clearance and removal be revised from 1-36 years to 10 months and 10% of the original capital value to 0 respectively commencing from August 2006. The accounting treatment of impairment provision as referred to in the First Special Session of 2007 will cease to be implemented. c. On 17 April 2007, the Fifth Session of the Fifth Board of Directors was held. Announcement of the resolutions passed at the meeting was disclosed in Securities Times and Ta Kung Pao on 19 April 2007 (Announcement No.: 2007-005). d. On 26 April 2007, the Third Special Session in 2007 of the Fifth Board of Directors was held by way of telecommunication. Announcement of the resolutions passed at the meeting was disclosed in Securities Times and Ta Kung Pao on 27 April 2007 (Announcement No.: 2007- 012). e. On 2 July 2007, the Fourth Special Session of the Fifth Board of Directors for 2007 was held by way of telecommunication. Announcement of the resolutions passed at the meeting was disclosed in Securities Times and Ta Kung Pao on 4 July 2007 (Announcement No.: 2007-024). f. On 17 July 2007, the Fifth Special Session in 2007 of the Fifth Board of Directors was held by way of telecommunication. Announcement of the resolutions passed at the meeting was disclosed in Securities Times and Ta Kung Pao on 18 July 2007 (Announcement No.: 2007- 026). g. On 23 August 2007, the Sixth Session in 2007 of the Fifth Board of Directors was held. Announcement of the resolutions passed at the meeting was disclosed in Securities Times and Ta Kung Pao on 25 August 2007 (Announcement No.: 2007-029). h. On 30 August 2007, the Sixth Special Session in 2007 of the Fifth Board of Directors was held by way of telecommunication. Announcement of the resolutions passed at the meeting was disclosed in Securities Times and Ta Kung Pao on 31 August 2007 (Announcement No.: 2007- 034). i. On 25 October 2007, the Seventh Special Session in 2007 of the Fifth Board of Directors was held by way of telecommunication. Announcement of the resolutions passed at the meeting was - 30 - 2007 Annual Report disclosed in Securities Times on 30 October 2007 and in Ta Kung Pao on 27 October 2007 respectively (Announcement No.: 2007-038). 2. Implementation by the Board of the resolutions passed at Annual General Meeting Profit Distribution Plan for 2006 was reviewed and approved at the Company's Annual General Meeting for 2006 held on 11 May 2007. Based on a total share capital of 644,763,730 shares as at the end of 2006, a cash dividend before tax of RMB 5.76 for every ten shares totalling RMB371,383,908.48 was proposed. The Board of the Company disclosed a notice in respect of payment of dividend for the year 2006 in Securities Times and Ta Kung Pao on 28 June 2007, and completed the dividends payment for both A shares and B shares on 5 July and 9 July 2007 respectively. 3. Performance of Responsibilities by the Audit Committee a. Opinions expressed two times upon review of the Company's Financial Statements for the year ended 2007 During the reporting period, the Audit Committee expressed its audit opinions two times on the Annual Financial Statements as required by CSRC. The Audit Committee reviewed the Financial Statements prepared by the Company and had conclude as follows before the Auditors started their work. The Company was in full compliance with relevant laws, regulations and the Articles of Association of the Company, the units and items of the Company's financial statements to be consolidated were complete, and the consolidation basis thereof was accurate and the information included in the Financial Statements submitted by the Company was objective, comprehensive and true. The Company's accounting policies were properly adopted and the accounting estimates made are reasonable. No significant mistake or omision has been identified so far. Due to the time-lag between this review of Financial Statements and the dates of the Auditors' Report and the Financial Statements, we suggest the Finance Department focus on and deal with subsequent events properly in accordance with the New Enterprises Accounting Standards to ensure fairness, truthfulness and completeness of the Financial Statements. After the Auditors issued their preliminary audit opinions, the Audit Committee reviewed the Financial Statements again and concluded as follows. The Company prepared the Financial Statement in full compliance with the New Enterprise Accounting Standards and relevant provisions of the financial control system of the Company, the procedures for the preparation of the Financial Statements was reasonable and proper, which gave a true and fair view of the Company's assets, liabilities, equity interests and operation results as at 31 December 2007. Information included in the Financial Statements was objective and complete. Financial Statements for 2007 which was preliminarily audited by PricewaterhouseCoopers Zhong Tian Certified Public Accountants may be submitted for review at the Seventh Session of the Fifth Board of Directors. b. Supervision over the Auditing of Accountants - 31 - 2007 Annual Report The Audit Committee issued letters to PricewaterhouseCoopers Zhong Tian Certified Public Accountants on 22 February and 7 March 2008 respectively to urge them produce their audit report in a timely manner, so as to ensure the annual audit and information disclosure proceed as scheduled. c. Conclusion Report on the Audit Work Performed by the Accountants for 2007 During the auditing period, the Audit Committee of the Board focused on the problems discovered in process of audit, urged Auditors to finish the preparation of their report within a prescribed period of time and ensured the truthfulness, accuracy and completeness of the annual report. The Certified Public Accountant issued standard audit report without reserved opinion on 8 April 2008. The Audit Committee considered that the Certified Public Accountant conducted their audit in accordance with China’s Independent Auditing Standards, the audit time was sufficient, the depoloyment of the auditors was appropriate and their practicing capability was excellent, and that the audit report issued sufficiently reflected the the Company's financial condition as at 31 December 2007 and its operation results and cash flows for the year 2007 and audit conclusion made was coincident with the actual situation of the Company. d. The Audit Committee’s Resolution on the Appointment of Auditors for 2008 The Audit Committee of the Board of Directors of the Company held the First Session in 2008 on 20 March 2008. 3 members was supposed to come and 3 attended the meeting. The resolutions approved unanimously by all the members of the Audit Committee are as follows. (1) The Financial Statements of 2007 was reviewed and approved and was submitted to the Board of Directors of the Company for approval; (2) “Conclusion Report on the Audit of Shenzhen Chiwan Wharf Holdings Limited by PricewaterhouseCoopers Zhong Tian Certified Public Accountants for 2007” was reviewed and approved and was submitted to the Board of Directors; (3) “Report on the Appointment of Auditors for 2008” was reviewed and approved. The Audit Committee recommend the Board to re-appoint PricewaterhouseCoopers Zhong Tian Certified Public Accountants as the Company's auditors for 2008; (4) “Report on the set-up of Internal Audit Rules” was reviewed and approved and was submitted to the Board of Directors for approval; (5) “Report on Internal Auditing Plan of the Company for 2008” was reviewed and approved e. Supervision over the Optimization of the Internal Control System of the Company The Audit Committee places great emphasis on the establishment of internal control and supervision departments of the Company and personnel deployment. The Audit Department is required to report its work to the Audit Committee on an annual basis and report the establishment and implementation of the internal control system, which enables the Audit Committee to understand the implementation and effect of the internal control system. On this base, the Audit Committee shall advise on the improvement in the Audit Department and the Company's work relating to internal control for the next year and require the Company to set up relevant accountability system to ensure implementation and effect thereof. 4. Performance of Responsibilities by Remuneration Committee - 32 - 2007 Annual Report Having reviewed summary statement of remunerations of directors, supervisors and senior management of the Company for 2007, Remuneration Committee concluded as follows. Allowance for Independent Directors was approved at the 2004 Annual Shareholders’ General Meeting as RMB80,000/year ( tax included ) for each person. Except for Independent Directors, the Company’s other members of the Board of Directors and the Supervisory Committee did not draw any remuneration, commission and others from the Company for taking the position of director or supervisor of the Company. The Board set up the Company’s business and financial budget for each year and sign KPI contracts accordingly with senior management staff. The Board then grants rewards to senior management staff according to their respective performance during the year. Details of remunerations of directors, supervisors and senior management as disclosed in 2007 Annual Report of the Company were true and reasonable. The Company has not set up equity incentive system for its directors and senior management. Remuneration Committee will get to know any progress in setting up the system. E. Profit Distribution Proposal for 2007 As audited by PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd., net profit of the Company for 2007 was RMB971,072,004, and retained profit at the beginning of the year was zero after the Company made up losses with surplus reserve. In 2007, the Company had paid common stock dividends of RMB371,383,908.48 for the year 2006, the residual profits available for distribution was RMB 599,688,095.52. 1. In accordance with the provisions of Company Law and the Articles of Association of the Company, the Company is going to draw 10% of net profit of the Company audited for the year 2007, namely RMB97,107,200, as statutory surplus reserve. 2. The Company would plan to distribute dividend of RMB6.78 (tax included) in cash for every 10 shares based on the total share capital of 644,763,730 as at the end of 2007, totaling RMB437,149,808.94. After the aforesaid distribution, the residual retained profit of the Company was RMB65,431,086.58. The above profit distribution proposal shall be submitted to 2007 Annual General Meeting for review and approval. PART VIII REPORT OF THE SUPERVISORY COMMITTEE A. Within the reporting year, in accordance with the Company Law of the PRC and the Company’s Articles of Association, the Supervisory Committee conducted examination and supervision, carried out its rights and obligations as well as delegated its representatives to attend the Board Meeting and gave its opinions upon the Company’s decision-making regarding some significant issues. The Supervisory Committee held five meetings in 2007. 1. The First Special Session of the Fifth Supervisory Committee of the Company in 2007 was held on 19 March 2007, in which “Report on the Revision of Expected Service Life and Estimated Net Residual Value Relating to the Subway Construction was reviewed and approved. - 33 - 2007 Annual Report 2. The Fifth Session of the Fifth Supervisory Committee of the Company was held on 17 April 2007 to: ● review and approve the Working Report of the Supervisory Committee for 2006; ● review and approve the Annual Report of the Company for 2006 and its Abstract. 3. The Second Special Session of the Fifth Supervisory Committee of the Company in 2007 was held on 26 April 2007, in which the First Quarter Report for 2007 was reviewed and approved. 4. The Sixth Session of the Fifth Supervisory Committee of the Company was held on 23 August 2007 to: ● review and approve the Semi-Annual Report for 2007 and its Abstract; ● review and approve the Self-inspection Report and Rectification Plan for Corporate Governance of the Company. 5. The Third Special Session of the Fifth Supervisory Committee of the Company in 2007 was held on 25 October 2007 to: ● review and approve the Third Quarter Report for 2007; ● review and approve the Rectification Report for Corporate Governance of the Company. B. The Supervisory Committee expressed its independent opinions on the following issues. 1. By supervising the Company’s production and operation, as well as the decision-making and management, the Committee confirmed that during the reporting period the Company did not, in the above activities, demonstrate any behavior which might have violated the laws and regulations of the country, and that the Company had set up perfect internal control system. By supervising the behaviors of the Company’s Directors and senior management staff as they were exercising their authorities, the Committee confirmed that, during the reporting period, the Company’s Directors and senior management had not, in their daily business and management activities, demonstrated any behavior which might have violated the laws, regulations, the Company’s Articles of Association, or the resolutions passed at Annual General Meetings. They had neither abused their authorities, nor infringed upon the interests of the shareholders, the Company or its employees; 2. The standard audit report for 2007 without any opinions reserved presented by the Company’s domestic accounting firm truly reflected the Company's financial status and business performance; 3. No funds were raised during the reporting year. The last proceeds (by issuing 40,000,000 B Shares in December 1995) had been used up by the end of 1996. Actual usage and amount of the proceeds were in conformity with the original plan; 4. Related party transactions taking place during the reporting period were conducted fairly in conformity with market prices (See Notes to the Financial Statements for details), and have not impaired the interests of the Company. - 34 - 2007 Annual Report PART IX SIGNIFICANT EVENTS A. The Company had no significant lawsuits or arbitration cases involved in 2007. B. The Company did not acquire or sell any assets in 2007. C. Particulars about holding the equity of other public companies Set out below is equity interests the Company held in other public companies during the reporting period, which were invested in previous periods. Changes in Gain owners’ Initial Shareholding Book value at during Stock equity Accounting Stock name investment percentage in the end of the the Source of shares code during the items amount the company period reporting reporting period period Shares held by legal Available- entity, which is Jiangsu for-sale 600377 1,120,000 0.02% 10,520,000.00 - 7,708,000.00 allowed for Expressway financial circulation after assets share reform ShenZhen Petro- Long-term Shares held by legal 400032 chemical Industry 3,500,000 0.26% 382,200.00 - - equity entity (Group) Co., Ltd. investments GuangDong Long-term Guang Jian Shares held by legal 400009 27,500 0.02% 23,800.00 - - equity Group Limited entity investments Company Total 4,647,500 - 10,926,000.00 - 7,708,000.00 The amount of funds used for trading shares of other public companies, number of shares traded and the resulting investment gain was nil during the reporting period. D. Significant related-party transactions 1. Related party transactions relating to daily operation a. Land lease payment Rental for the lease of stockyard land by the Company from related party was negotiated between the parties and settled through banks. Details of the land lease rental payable for 2007 are as follows: 2007 2006 CND RMB33,574,399 RMB29,039,063 To meet the requirements of the Company’s daily operations, Harbor Division of the Company and Chiwan Container Terminal Co., Ltd. ("CCT"), in which the Company holds 55% equity interests directly and indirectly, lease several pieces of lands from CND for bulk cargo and container stacking each year. The transactions are the Company's recurrent operations, which were conducted in the past and will continue in the future. - 35 - 2007 Annual Report Relevant rental was negotiated between the parties and was substantially the same as rental for land leases in western port area of Shenzhen for 2007. The monthly rental was RMB3 to RMB11 for each square meter, payable on a monthly basis. In the case of overdue payment, a late payment fee equivalent to 0.05% of monthly rental shall be charged for every day overdue. The above transaction accounted for 65.88% of the Company's rental for stockyard and offices during the reporting period, while the cost incurred was RMB33.57 million. Total volume of the above transaction was expected to be RMB30 million throughout 2007, while the actual amount was 111.90% of the estimation. b. Income from cargo handling By taking advantage of its bulk cargo berths and handling equipment, Shenzhen Chiwan Terminal Co., Ltd. ("Chiwan Terminal", a wholly owned subsidiary of the Company) was able to provide handling, storage and transportation services for certain raw materials (i.e. soybean) of Shenzhen Nantian Oilmills Co., Ltd. ("Nantian Oilmills"), which is related party of the Company. The transaction is part of the Company's normal business and will continue in the future. Nantian Oilmills is one of customers for the Company's bulk cargo handling business, who provides stable source of cargo for the Company. Consideration for the transaction was negotiated between the parties and was substantially the same as handling charge for imported bulk grains in Shenzhen port for 2007. Without impairing the interests of the Company, such transaction contributed to an increase in operating income of RMB14.21 million and operating profit of RMB6.54 million for the Company in 2007. Such transaction with Nantian Oilmills will bring a certain amount of operating income and operating profit for the Company each year should it continue in the long term,. On 13 March 2007, Chiwan Terminal and Nantian Oilmills entered into “Contract on Provision of Handling and Storage Services for Cargoes of Nantian Oilmills”(the "Contract") in respect of daily related party transactions relating to handling for the whole year. The Contract sum was settled through banks on a vessel-by-vessel basis according to the actual weight. Term of the Contract is from 1 January 2007 to 31 December 2007. The above-mentioned transaction between Nantian Oilmills and the Company during the reporting period complied with the provisions of the Contract. Detains of the transactions in 2007 is set out as below. 2007 2006 Shenzhen Nantian Oilmills Co.,Ltd. RMB14,211,661 RMB12,692,631 Volume of the above-mentioned transaction was expected to bring an amount of RMB12.60 million throughout 2007, while the actual amount was 112.79% of the estimation and accounted for 0.77% of the Company's income from handling services for 2007. c. Income from land transportation business Shenzhen Mawan Port Service Co., Ltd. and Shenzhen Mawan Terminals Co., Ltd. (hereinafter referred to as “Mawan Company”) are the Company's customers for land transportation business. land transportation business and related operations provided by the Company to Mawan Company was part of the Company’s normal opeation, which was conducted in the past and will continue in the future. - 36 - 2007 Annual Report Consideration for the transaction was negotiated between the parties and was substantially the same as the level in the western port area of Shenzhen in 2007. Chareges are payable on a monthly basis. The above-mentioned related party transaction between the Company and Mawan Company during the reporting period complied with the provisions of the contract. Details of the transaction in 2007 is set out below: 2007 2006 Mawan Company RMB20,618,631 RMB13,194,999 Volume of the transaction was expected to bring an amount of RMB16.44 million throughout 2007, while the actual amount was 125.42% of the estimation, which accounted for 14.55% of the Company's operating income from land transportation services for the year. 2. Credits and liabilities between related parties and the Company a. Trade receivables 31 December 2007 31 December 2006 RMB RMB Mawan Company 1,318,892 1,548,824 Nantian Oilmills 1,436,270 230,858 Shenzhen Southseas Grains Industries Limited 1,071,885 1,099,307 3,827,047 2,878,989 The Company's receivables from the related parties for the provision of land transportation business, handling services and leases accounted for 1.76% of the balance of account receivables as at the end of 2007. b. Long-term receivables 31 December 2007 31 December 2006 Media Port Investments Ltd. RMB195,834,378 RMB209,135,388 Shareholder's contribution to an associated company of the Company within the total investment prescribed in the Joint Venture Agreement. c. Long-term loans and Current portion of long-term loansr 31 December 2007 31 December 2006 RMB RMB Current portion of long-term loansr CND 226,608,800 - Long-term loans CND - 92,000,000 - 37 - 2007 Annual Report The Company's loans from CND accounted for 15.16% of the total loans as at the end of 2007. Please refer to D.3 of PART IX in this report for more details. d. Trade payables 31 December 2007 31 December 2006 RMB RMB Shenzhen Chixiao Engineering Construction Co., Ltd 7,312,396 6,619,849 CND 1,975,064 2,299,662 Shenzhen Haiqin Engineering Supervision & Management Co., Ltd. 1,308,356 1,651,187 10,595,816 10,570,698 The Company's payables due to the related parties incurred as a result of land leasing and acceptance of engineering construction and supervision service accounted for 18.52% of the accounts payables as at the end of 2007. e. Other payables 31 December 2007 31 December 2006 RMB RMB CND (1) 200,006,183 Mawan Company (2) 2,251,895 4,848,354 202,258,078 4,848,354 (1) RMB200 million of the amount was interest-free borrowings obtained by the Company on 14 December 2007 from CND for the purpose of paying good faith deposit for proposed project. As the Company withdraw from the project, the relevant good faith deposit has been returned. Thus, the afore-said borrowings was repaid by the Company to CND on 9 January 2008; (2) In relation to marketing activities jointly conducted by the Company and Mawan Company, the parties shared the expenses thus incurred according to numbers of berths each had. In relation to the mutual collection and disbursement fees incurred in the course of settlement, the Company will confirm the collection and disbursement fees with Mawan Company after checking accounts with customers. The Company's other payables to related parties accounted for 68.80% of the balance of other payables as at the end of 2007. 3. Other significant related party transactions Borrowings 2007 2006 RMB RMB CND - borrow 159,188,000 92,000,000 - repay (18,728,000) (100,000,000) - 38 - 2007 Annual Report In September 2007, the Company repaid long-term loans of HKD20 million obtained from CND in 2006. The interest paid in respect of such loans in 2007 amounted to HKD104,208. In July 2007, Chiwan Wharf (Hong Kong) Limited obtained from CND 17-month long-term loan of HKD170million, bearing interest rate of 5.62% per annum. The interest paid in respect of such borrowings in 2007 amounted to HKD4,004,827. E. Significant contracts and execution 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. During the reporting period, the Company did not provide any guarantee for others, even for its subsidiaries. 3. The Company did not entrust others with cash management during the reporting period. F. Commitment made by the controlling shareholder in the share merger reform Name Special Commitment Execution Commitment on dividend policy: CND commits to keep stable Profit distribution plan for 2006 was dividend policy as in the past, promises to put forward dividend executed with the payout ratio being China Nanshan distribution proposal at Annual General Meeting for 2006 and 60%. Dividend payout ratio as set in Development 2007, and the dividend payout ratio shall not be less than 50% of the profit distribution proposal for (Group) the distributable profits achieved in respective year, and promises 2007 was 50.02%. Incorporation to vote for it at Annual General Meeting. Commitment on increase of its share equity at the Company: Executed. To avoid the unreasonable fluctuation of stock price of the Company and boost investors confidence in the Company, and at the same time to enhance its position as controlling shareholder, CND will, within 2 months after the share reform proposal be approved at the Relevant Shareholders’ Meeting of A Share Market, buy from stock market 9,406,540 shares (say 10% of all tradable A shares not subject to trading moratorium of 94,065,400 after the execution of the share reform proposal) when the price is not higher than RMB13.00. Within 6 months after share equity increase plan is executed, CND will not sell any shares thus bought according to the said plan, otherwise the income from the sale of shares will be possessed by all shareholders. Motivation scheme: In order to enhance shareholders’ confidence Under discussion and boost initiatives of management team and core staff of the Company, CND will, after the share reform proposal is executed, choose to entrust the Board of Directors of the Company through annual general meeting to formulate and carry out motivation scheme according to relevant laws and regulations, thus integrate the interests of management team with the whole shareholders of the Company. - 39 - 2007 Annual Report Letter of Guarantee: CND commits that it will obtain, before the Executed. registration date for the Relevant Shareholders’ Meeting of A Share Market, the letter of guarantee from certain monetary institution recognized by Shenzhen Stock Exchange, consenting to provide complete guarantee to CND for the required amount of money when put options granted to shareholders of tradable shares be executed. Keep the Company as a listed one: CND commits that the Executed. Company is undertaking Share Reform with a view to address the problem of balancing the interests among shareholders of circulating and non-circulating shares, but not to quit from the stock market. CND promises to implement actions to keep the Company as a listed one within the period stipulated by relevant laws, rules and regulations, and to disclose information in time, if the shareholding structure does not conform to the requirements for a listed company recognized by Shenzhen Stock Exchange due to the execution of put option. G. Appointment of accountants Approved by the Annual General Meeting for 2006 held on 11 May 2007, the Company appointed PricewaterhouseCoopers Zhong Tian Certified Public Accountants, which has been working for the Company for seven years, as the Company’s domestic accounting firm for 2007. Remunerations paid in the reporting year were set out as follows. 2007 PricewaterhouseCoopers Zhong Tian Audit expenses RMB 1,350,000 Other expenses — H. Interviews and visits in the reporting year In the reporting period, the Company handled warm-heartedly investors’ phone calls and held one- on-one meetings with investors. The Company disclosed relevant information to investors in accordance with the Company Law, the Securities Law, the Rules on the Management of Investors Relations and other laws and regulations. In 2007, the Secretariat of the Board of Directors received in aggregate 33 visits, respectively from 23 domestic funds, 22 domestic security firms, 49 QFIIs and two other institutions. The Company gave visitors an introduction to the profile of the Company and the development of its business, and made reasonable disclosures regarding the operations, investments and financial status of the Company that the investors were interested in. The Company did not disclose, reveal or divulge to any specific visitors any material information not generally available to the public. Details of such interviews and visits are as follows: Topics discussed and Type Means Time Location Investor information provided Promotional Roadshow of Jan., 2007 Shanghai Clients of UBS activities UBS - 40 - 2007 Annual Report launched by Roadshow of April, 2007 Beijing Clients of JP Morgan security firms JP Morgan Chase Basic Roadshow of Oct.,2007 Macau Clients of Citigroup information Citigroup of operations Roadshow of Nov.,2007 Guangzhou Clients of Merrill Lynch and Merrill investments of Lynch the Company and the investor Oral Jan., 2007 Conference Morgan Stanley, E Fund, Merrill Lynch, financial reception interview, room of the Guosen Securities status of the Telephone Feb., 2007 Company U-Builder Investment Consulting Co., Company conference Ltd, CITICS China Securities Co., Ltd, Guoyuan Secuirties March, Gaohua Securities, Fullgoal Fund, Bank Information 2007 of Communications Schroders, China provided: AMC, United Securities Co., Ltd, Brochure of YinHua Fund, Morgan Stanley, the Company Massachusetts Financial Services, Ospraie Management, Perpetual Trustee Company, Pequot Capital Management, Maverick Capital, Artisan partners, JP Morgan Investment Management, GIC, Oaktree, Columbia Management, Colonial, Gartmore Investment Management, Fidelity April, 2007 Guotai J&A Securities Securities Co., Ltd, Shenyin & Wanguo Securities Investment Department, Research Institute of Guoyuan Securities, Baoying Fund Management Co., Ltd, Shenzhen Lin Yuan Investment & Management June, 2007 Morgan Stanley Halbis Capital Management(Hong Kong) limited, Credit Agricole Asset Management Hong Kong Ltd, New China Asset Management Co., Ltd July,2007 Daiwa Securities SMBC HK Ltd, Shinko Investment Trust Co. Ltd., Marco Polo Investment Group, Changjiang Securities , Haitong Securities Co., Ltd. , Baring Asset Management (Asia) Co., Ltd. Aug.,2007 Abu Dhabi Investment Authority (ADIA), Naito Securities Co., Ltd., Fabien Pictet & Partners Ltd, Threadneedle Asset management Limited, Merrill Lynch (AP) Co., Ltd. Sep.,2007 CITIC Securities Company Limited, China Jianyin Investment Securities Company Ltd, CITIC-Prudential Fund Management Company Ltd, Orient Securities Company Limited, Huatai Asset Management Co., Ltd., Shanghai Mushitage Investment Advising Co., Ltd, Shanghai Securities Co., Ltd., Lord - 41 - 2007 Annual Report Abbett China Asset Management Co., Ltd, Yinhua Fund Management Co.,Ltd, Guotai Junan Securities Co., Ltd, Changsheng Fund Management Co.,Ltd, Northern Securities Company Ltd., Shanghai Pudong Development Bank Co., Ltd, Rongtong Fund Management Co., Ltd, First State Cinda Fund Management Co., Ltd., Fortune SGAM Fund Management Co., LTD., Galaxy Asset Management Co.,Ltd, Bank of Communications Schroder Fund Management Co.,Ltd, ABN AMRO TEDA Fund Management Co., Ltd., CITIC Fund Management Co., Ltd., Baoying Fund Management Co., Ltd., Talking Asset Management Co.,Ltd, China Asset Management Co.,Ltd., Da Cheng Fund Management Co., Ltd, Templeton Asset Management Ltd, CLSA Limited Nov.,2007 KGI Consulting Co.Ltd, PengYuan Consulting Co.Ltd, Qilu securities co.,ltd Dec.,2007 Mattews International Capital Management,Llc, Morgan Stanley asia limited, Cazenove asia limited, Rong tong fund management co.,ltd, Changsheng fund management co.,ltd, UBS securities co.limited: I. As at 8 April 2008, the Company did not implement any equity incentive schemes. J. During the Reporting Period, none of the Company, its Directors, Supervisors, Senior Management, shareholders or actual controllers was subject to investigaiton by competent 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 candicate. On 11 September 2007, the Company accepted the on-spot inspection relating to the special surveys for corporate governance conducted by the Shenzhen Securities Regulatory Bureau of the CSRC, and took rectificative measures according to the rectification recommendations on a case-by-case basis thereafter. Rectifications were made by the Company in respect of the deficiencies in relation to information disclosure, the Company's independence, institutionalization and the operation of Board committees as set out in the letter issued by the Shenzhen Securities Regulatory Bureau regarding aspects to be rectified. In compliance with the Code on Corporate Governance Practices and the Articles of Association, the Company duly amended the Management Rules on Disclosure of Corporate Information, Rules on Decision-making for Related Party Transactions, Management Rules on Shares of the Company held by the Directors, Supervisors and Senior Management of the Company and the Changes therein and Management Rules on Raised Proceeds of the Company. - 42 - 2007 Annual Report The relevant rectification report on corporate governance was disclosed in Securities Times and Ta Kung Pao dated 27 October 2007 (Announcement No: 2007-041); The implementation of the special events for corporate governance helps the Company further enhance its corporate governance and improve its disciplined operation. In relation to the problems and deficiencies identified in such surveys, we have formulated specific rectification measures in a timely manner and will have them duly implemented. By capitalizing on this opportunity, the Comapny will continue to solidify its management base by enabling its Directors, Supervisors and Senior Management to have a better understanding of the securities laws and regulations. The Company aims to gradually turn its corporate governance structure into an efficient, disciplined and scientific corporate governance mechanism, protect the lawful interests of the Company and its shareholders as a whole and ensure the Company's sustainable development with the support from the regulatory authorities and the investment community. K. Other significant events Date of Events No. of announcement Newspaper and reference page Website announcement In performing its undertakings under the Share Reform, China Nanshan Development (Group) Incorporation （“CND”）, the 2007-010 ST A11; CSJ B16; SSN D77 controlling shareholder of the Company, granted each shareholder holding tradable A 2007-011 ST A11; CSJ B16; SSN D77 shares not subject to trading moratorium 2007-015 ST B8; CSJ A07; SSN D5 whose name appears on the Company's 27 April 2007 – 2007-016 ST C3;CSJ B02;SSN D18 http://www.cninfo.com.cn/ register as at 22 May 2007 eight put options 30 May 2007 for every eleven shares then held, exercisable 2007-017 ST C8;CSJ B03;SSN D18 within 5 trading days from 23 May 2007 to 29 May 2007 at an exercise price of RMB 12.344 2007-018 ST C16;CSJ B11;SSN D13 per share. No put option was exercised by the 2007-019 ST B7;CSJ A09; SSN D15 Shareholders during the exercise period of the put options. Shares subject to trading moratorium held by CND, , which will be listed for trading, is 30 June 2007 2007-023 ST C22; TKP C9 23,243,415. The listing date for such shares is 3 July 2007. - 43 - 2007 Annual Report At the Fifth Special Session of the Fifth Board of Directors of the Company for 2007 held on 17 July 2007, it was agreed that the Company and China Merchants International (China) Investment Company Limited would increase their capital contribution to China Merchants Maritime & Logistics (Shenzhen) Ltd. (“Shenzhen Merchants”), which is held as 60% by China Merchants International (China) Investment Company Limited and 40% by the Company respectively, in cash in proportion to their respective shareholding percentages. Such funds will be used to 18 July 2007 2007-026 ST C28; TKP C6 finance the acquisition of land and the 25 August 2007 2007-029 ST C114; TKP A21 construction of warehouses of phases 3 and 4 of Qianhai Logistics Park. The additional capital contribution made by the Company to Shenzhen Merchants was RMB52 million. At the Sixth Session of the Fifth Board of Directors of the Company held on 23 August 2007, it was resolved that the Company's additional capital contribution to Shenzhen Merchants be decreased from RMB52 million to RMB40 million as the total capex of Shenzhen Merchants for 2007 was decreased by RMB100 million. On 30 August 2007, the Company signed several documents, including the Principle Agreement on the Transfer of Equity in Qingdao Shengtong Coast Property Development Co., Ltd. (‘Shengtong”), with shareholders of Shengtong , namely Shandong Shengli Co., Ltd (“Shengli”), Qingdao Shengxin Investment Co., Ltd. (“Shengxin”), Qingdao Sifang Urban Development Company and Sifang District Government of Qingdao City. In accordance with these documents, the Company would be transferred 31 August 2007 2007-035 ST A10; KTP B3 a total of 75% equity interests of Shengtong 24 January 2008 2008-002 held by Shengli and Shengxin. In view of the urban development strategy of “depending on the core of the city, developing along the coast, layout in a group and axis- radiation” formulated by the Qingdao Municipal CPC Committee and the Municipal Government of Qingdao, it is intended that the planning and positioning of the Jiaozhou Bay should be reviewed. As Shengtong's reclamation area is located in the planned area, the negotiation between the Company and the related parties is currently suspended. * ST refer to Securities Times, CSJ refer to China Securities Journal, SSN refer to Shanghai Securities News and TKP refer to Ta Kung Pao. - 44 - 2007 Annual Report PART X FINANCIAL STATEMENTS (See attached) PART XI DOCUMENTS FOR REFERENCE 1. Financial Statements carrying the signatures of the Company's legal representative, the Chief Financial Officer and the person in charge of accounting; 2. Original copy of Auditor's Statement sealed by CPA and signed by registered accountants; 3. Original copies and press disclosures of all the announcements disclosed in 2007 on “Securities Times” and “Ta Kung Pao”; and 4. Original copy of the Annual Report signed by the Chairman. For and on behalf of the Board Wang Fen Chairman Shenzhen Chiwan Wharf Holdings Limited Dated 10 April, 2008 - 45 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED FINANCIAL STATEMENTS AND REPORT OF THE AUDITORS FOR THE YEAR ENDED 31 DECEMBER 2007 46 SHENZHEN CHIWAN WHARF HOLDINGS LIMITED Financial Statements and Report of the Auditors For the year ended 31 December 2007 [English translation for reference only] Contents Page The report of the auditors 1-2 Consolidated and the company’s balance sheets 3-4 Consolidated and the company’s income statements 5 Consolidated and the company’s cash flow statements 6 Consolidated statement of changes in owners’ equity 7 The company’s statement of changes in owners’ equity 8 Notes to financial statements 9 - 75 普华永道中天会计师事务所有限公司 11th Floor PricewaterhouseCoopers Center 202 Hu Bin Road Shanghai 200021, P.R.C. Telephone +86 (21) 6123 8888 Facsimile +86 (21) 6123 8800 www.pwccn.com Report of Auditors PwC ZT Shen Zi (2008) No.10043 (Page 1 of 2) To the shareholders of Shenzhen Chiwan Wharf Holdings Limited： We have audited the accompanying financial statements of Shenzhen Chiwan Wharf Holdings Limited (“Chiwan Wharf Company”) and its subsidiaries (collectively the “Chiwan Wharf Group”) which comprise the consolidated and the company balance sheets as at 31 December 2007, the consolidated and the company income statements, the consolidated and the company cash flow statements and the consolidated and the company statements of changes in equity for the year then ended and the notes to these financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation of these financial statements in accordance with the Accounting Standards for Business Enterprises. This responsibility includes: (1) designing, implementing and maintaining internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error; (2) selecting and applying appropriate accounting policies; and (3) making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the China Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. -1- PwC ZT Shen Zi (2008) No.10043 (Page 2 of 2) An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements in order to design audit procedures that are 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 policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying consolidated and the company financial statements present fairly, in all material respects, the financial position of Chiwan Whalf Group and Chiwan Whalf Company as of 31 December 2007, and their financial performance and their cash flows for the year then ended in accordance with the Accounting Standards for Business Enterprises. PricewaterhouseCoopers Zhong Tian CPAs Limited Company Shanghai, the People’s Republic of China 8 April 2008 -2- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED AND COMPANY BALANCE SHEETS AS AT 31 DECEMBER 2007 (All amounts in RMB Yuan unless otherwise stated) [English translation for reference only] 31 December 2006 31 December 2006 31 December 2007 The Group- 31 December 2007 The Company- ASSETS Note The Group Restated(Note 2) The Company Restated(Note 2) Current assets Cash at bank and on hand 7(1) 781,587,534 168,722,871 570,266,835 72,425,922 Notes receivable 7(2) 1,167,600 1,650,444 1,167,600 1,650,444 Dividends receivable - - 425,321,224 - Accounts receivable 7(3), 9(1), 10(4) 217,005,190 240,323,715 9,647,134 19,943,547 Advances to suppliers 7(4) 6,272,274 3,721,650 - 118,720 Other receivables 7(3), 9(1),10(6) 9,817,791 2,765,158 146,614,365 275,062,013 Inventories 7(5) 24,629,401 23,603,514 1,034,833 804,691 Hedging instrument 7(6) 39,459,166 - - - Total current assets 1,079,938,956 440,787,352 1,154,051,991 370,005,337 Non-current assets Available-for-sale financial assets 7(7) 10,520,000 - 10,520,000 - Long-term receivables 7(8), 10(4),10(6) 195,834,378 209,135,388 217,001,724 157,001,724 Long-term equity investments 7(9), 9(2) 335,978,363 175,833,192 786,582,728 610,816,448 Investment properties 7(10) 29,664,243 30,544,520 21,511,246 22,162,002 Fixed assets 7(11) 2,272,954,882 2,459,538,192 198,322,996 200,875,743 Construction in progress 7(12) 288,525,812 66,601,121 944,134 9,037,487 Intangible assets 7(13) 1,138,614,622 1,177,203,873 120,356,947 125,157,888 Goodwill 7(14) 10,858,898 10,858,898 - - Long-term prepaid expenses 7(15) 65,424,928 23,824,604 5,839,087 546,646 Deferred tax assets 7(27) 29,020,636 11,271,474 12,639,786 9,492,997 Total non-current assets 4,377,396,762 4,164,811,262 1,373,718,648 1,135,090,935 TOTAL ASSETS 5,457,335,718 4,605,598,614 2,527,770,639 1,505,096,272 -3- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED AND COMPANY BALANCE SHEETS AS AT 31 DECEMBER 2007 (CONTINUED) (All amounts in RMB Yuan unless otherwise stated) [English translation for reference only] 31 December 2006 31 December 2006 LIABILITIES AND 31 December 2007 The Group- 31 December 2007 The Company OWNERS’ EQUITY Note The Group Restated(Note 2) The Company Restated(Note 2) Current liabilities Short-term borrowings 7(17) 1,221,310,000 968,750,000 401,160,000 218,000,000 Notes payable 7(18) 6,687,150 18,116,596 - 8,848,500 Accounts payable 7(19),10(4) 57,201,825 92,167,271 12,926,232 12,683,308 Advances from customers 7(20) 427,561 1,741,202 - 43,738 Employee benefits payable 7(21) 48,322,728 36,801,931 28,325,184 21,090,357 Dividends payable 7(22) 295,768,833 - - - Taxes payable 7(23) 25,870,474 28,619,484 1,117,555 828,504 Interests payable 173,320 151,839 173,320 151,839 Other payables 7(24),10(4), 10(6) 293,955,986 67,814,251 467,181,771 235,651,545 Deferred revenue 7(25) 5,292,500 5,889,494 - - Current portion of non- current liabilities 7(26),10(4) 273,428,800 81,400,000 - - Total current liabilities 2,228,439,177 1,301,452,068 910,884,062 497,297,791 Non-current liabilities Long-term borrowings 7(26) ,10(4) - 142,000,000 - - Deferred revenue 7(25) 79,828,541 90,716,755 - - Deferred tax liabilities 7(27) 4,446,249 1,692,000 Total non-current liabilities 84,274,790 232,716,755 1,692,000 - Total liabilities 2,312,713,967 1,534,168,823 912,576,062 497,297,791 Owners' equity Paid-in capital 7(28) 644,763,730 644,763,730 644,763,730 644,763,730 Capital surplus 7(29) 168,577,210 140,004,950 157,618,828 149,910,828 Surplus reserve 7(30) 1,094,116,893 1,094,116,893 1,094,116,893 1,094,116,893 Undistributed profits 679,821,265 387,333,006 (281,304,874) (880,992,970) Translation difference of foreign currency financial statements (1,415,833) (3,785,263) - - Total equity attributable to equity holders of the Company 2,585,863,265 2,262,433,316 1,615,194,577 1,007,798,481 Minority interest 7(32) 558,758,486 808,996,475 - - Total owners' equity 3,144,621,751 3,071,429,791 1,615,194,577 1,007,798,481 TOTAL LIABILITIES AND OWNERS’ EQUITY 5,457,335,718 4,605,598,614 2,527,770,639 1,505,096,272 The accompanying notes form an integral part of these financial statements. -4- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED AND COMPANY INCOME STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB Yuan unless otherwise stated) [English translation for reference only] 2006 2006 2007 The Group 2007 The Company Items Note The Group Restated(Note 2) The Company Restated(Note 2) Revenue 7(33), 9(3), 10(3) 2,003,562,530 1,948,638,423 192,713,033 205,255,146 Less: Cost 7(33) (792,237,695) (730,872,853) (148,124,114) (143,826,375) Tax and levies on operations 7(34) (69,174,727) (66,431,623) (6,243,252) (6,439,379) General and administrative expenses (135,362,508) (122,137,434) (51,631,578) (41,733,455) Finance expenses - net 7(35) (28,367,266) (51,050,121) (1,188,745) (32,847,414) Asset impairment losses 7(36) (60,937,679) 181,047 (228) 104,763 Add: Investment income 7(37),9(4) 128,090,386 62,094,689 981,763,526 657,149,625 Including: Share of profit of associates and joint ventures 7(37) 121,265,171 62,019,636 1,679,581 (3,234,552) Operating profit 1,045,573,041 1,040,422,128 967,288,642 637,662,911 Add: Non-operating income 7(38) 2,674,432 2,950,598 1,661,470 156,389 Less: Non-operating expenses 7(38) (5,476,032) (1,542,528) (520,513) (135,377) Including: Loss on disposals of non- current assets (5,426,415) (1,013,509) (510,218) (125,155) Total profit 1,042,771,441 1,041,830,198 968,429,599 637,683,923 Less: Income tax expenses 7(39) (50,267,237) (81,648,433) 2,642,405 7,052,488 Net profit 992,504,204 960,181,765 971,072,004 644,736,411 Attributable to equity holders of the Company 663,872,167 626,836,148 Minority interest 328,632,037 333,345,617 Earnings per share (attributable to equity holders of the Company) Basic earnings per share 7(40) 1.030 0.972 Diluted earnings per share 7(40) 1.030 0.972 The accompanying notes form an integral part of these financial statements. -5- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB Yuan unless otherwise stated) [English translation for reference only] 2006 2006 The Group The Company 2007 Restated 2007 Restated Items Note The Group (Note 2) The Company (Note 2) 1. Cash flows from operating activities Cash received from rendering of services 1,983,854,763 1,890,050,097 186,532,961 199,713,019 Refund of taxes and levies - 2,613,529 - - Cash received relating to other operating activities 22,975,474 66,488,564 43,574,019 893,736 Sub-total of cash inflows 2,006,830,237 1,959,152,190 230,106,980 200,606,755 Cash paid for goods and services (349,308,638) (315,568,039) (91,508,732) (94,396,072) Cash paid to and on behalf of employees (189,410,725) (165,777,633) (45,335,011) (41,694,244) Payments of taxes and levies (148,486,709) (170,794,577) (9,636,321) (11,877,064) Cash paid relating to other operating activities 7(41) (122,131,179) (160,999,471) (5,735,673) (39,239,264) Sub-total of cash outflows (809,337,251) (813,139,720) (152,215,737) (187,206,644) Net cash flows from operating activities 7(41) 1,197,492,986 1,146,012,470 77,891,243 13,400,111 2. Cash flows from investing activities Cash received from disposals of investments - - 507,000,000 398,073,265 Cash received from returns on investments 6,825,215 3,652,380 447,572,047 631,768,481 Net cash received from disposals of fixed assets 1,857,971 8,093,491 300,977 870,152 Sub-total of cash inflows 8,683,186 11,745,871 954,873,024 1,030,711,898 Cash paid to acquire fixed assets, intangible assets and other long-term assets (397,292,471) (150,732,025) (35,321,112) (10,383,225) Cash paid relating to other investing activities (40,000,000) (40,106,796) (505,798,000) (512,923,540) Sub-total of cash outflows (437,292,471) (190,838,821) (541,119,112) (523,306,765) Net cash flows from investing activities (428,609,285) (179,092,950) 413,753,912 507,405,133 3. Cash flows from financing activities Cash received from borrowings 2,068,094,000 1,579,620,000 911,000,000 658,200,000 Cash repayments of borrowings (1,484,924,000) (1,526,624,126) (515,000,000) (663,121,255) Cash payments for interest expenses and distribution of dividends or profits (735,923,394) (992,165,735) (389,231,705) (501,759,900) Including: Cash payments for dividends or profit to minority shareholders of subsidiaries (299,618,406) (452,760,659) - - Sub-total of cash outflows (2,220,847,394) (2,518,789,861) (904,231,705) (1,164,881,155) Net cash flows from financing activities (152,753,394) (939,169,861) 6,768,295 (506,681,155) 4. Effect of foreign exchange rate changes on cash and cash equivalents (3,065,644) (2,483,988) (572,537) - 5. Net increase in cash and cash equivalents 613,064,663 25,265,671 497,840,913 14,124,089 Add: Cash and cash equivalents at beginning of year 7(41) 168,522,871 143,257,200 72,425,922 58,301,833 6. Cash and cash equivalent at end of year 7(41) 781,587,534 168,522,871 570,266,835 72,425,922 The accompanying notes form an integral part of these financial statements. -6- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED STATEMENT OF CHANGES IN OWNERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB Yuan unless otherwise stated) [English translation for reference only] Attributable to equity holders of the Company Translation difference of foreign currency Capital Undistributed financial Items Note Paid-in capital surplus Surplus reserves profits statements Minority interest Total owners' equity Balance at 31 December 2005 644,763,730 150,436,869 848,530,962 484,831,402 (21,232,561) 928,166,071 3,035,496,473 Changes in accounting policies 13 - - - 2,889,893 - - 2,889,893 Balance at 1 January 2006 644,763,730 150,436,869 848,530,962 487,721,295 (21,232,561) 928,166,071 3,038,386,366 Movement for the year ended 31 December 2006 Net profit - - - 626,836,148 - 333,345,617 960,181,765 Gains or losses recognised directly in owners' equity - translation difference - - - - 17,447,298 60,508 17,507,806 - others - (10,431,919) - - - 184,938 (10,246,981 Sub-total - (10,431,919) - - 17,447,298 245,446 7,260,825 Profit appropriation Appropriation to surplus reserves 7(30) - - 245,585,931 (245,585,931) - - - Profit distribution to equity owners 7(31) - - - (481,638,506) - (452,760,659) (934,399,165 Balance at 31 December 2006 644,763,730 140,004,950 1,094,116,893 387,333,006 (3,785,263) 808,996,475 3,071,429,791 Balance at 1 January 2007 644,763,730 140,004,950 1,094,116,893 387,333,006 (3,785,263) 808,996,475 3,071,429,791 Movement for the year ended 31 December 2007 Net profit - - - 663,872,167 - 328,632,037 992,504,204 Gains or losses recognised directly in owners' equity - net changes in fair value of available-for-sale financial assets 7(29) - 7,708,000 - - - - 7,708,000 - net changes in fair value of hedging instrument of CCT 7(29) - 20,187,704 - - - 16,517,213 36,704,917 - translation difference - - - - 2,369,430 - 2,369,430 - others - 676,556 - - - - 676,556 Sub-total - 28,572,260 - - 2,369,430 16,517,213 47,458,903 Profit appropriation - Appropriation to surplus reserves 7(30) - - - - - - - Profit distribution to equity owners 7(31) - - (371,383,908) - (595,387,239) (966,771,147 Balance at 31 December 2007 644,763,730 168,577,210 1,094,116,893 679,821,265 (1,415,833) 558,758,486 3,144,621,751 The accompanying notes form an integral part of these financial statements. -7- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED COMPANY STATEMENT OF CHANGES IN OWNERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB Yuan unless otherwise stated) [English translation for reference only] Items Note Paid-in capital Capital surplus Surplus reserves Undistributed profits Total owners' equity Balance at 31 December 2005 644,763,730 150,436,869 848,530,962 484,831,402 2,128,562,963 Changes in accounting policies (526,041) (1,283,336,346) (1,283,862,387) Balance at 1 January 2006 644,763,730 149,910,828 848,530,962 (798,504,944) 844,700,576 Movement for the year ended 31 December 2006 Net profit - - - 644,736,411 644,736,411 Profit distribution Appropriation to surplus reserves 7(30) - - 245,585,931 (245,585,931) - Profit distribution to equity owners 7(31) - - - (481,638,506) (481,638,506) Balance at 31 December 2006 644,763,730 149,910,828 1,094,116,893 (880,992,970) 1,007,798,481 Balance at 1 January 2007 644,763,730 149,910,828 1,094,116,893 (880,992,970) 1,007,798,481 Movement for the year ended 31 December 2007 Net profit - - - 971,072,004 971,072,004 Gains or losses recognised directly in owners' equity - net changes in fair value of available- for-sale financial assets 7(29) - 7,708,000 - - 7,708,000 Profit distribution Appropriation to surplus reserves 7(30) - - - Profit distribution to equity owners 7(31) - - - (371,383,908) (371,383,908) Balance at 31 December 2007 644,763,730 157,618,828 1,094,116,893 (281,304,874) 1,615,194,577 The accompanying notes form an integral part of these financial statements. -8- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 1 General information Shenzhen Chiwan Wharf Holdings Limited (the “Company”) was incorporated in September 1982 in Shenzhen, the People’s Republic of China (the “PRC”), by China Nanshan Development (Group) Ltd (the “Nanshan Group”). In January 1993, as approved by the Shenzhen municipal government with document SFBF (1993)357, the Company was reorganized into a joint stock limited company. In February 1993, the Company issued, by public offering, the domestic shares (“A shares”) of 46,000,000 shares and domestically listed foreign shares (“B shares”) of 40,000,000 shares. Both shares were listed in Shenzhen Stock Exchange in May 1993. In June 1994, 31,047,000 bonus shares were issued in a proportion of “one bonus share for every ten shares”. In June, the bonus A shares and bonus B shares held by Nanshan Group were listed in Shenzhen Stock Exchange. In December 1995, the Company issued additional 40,000,000 B shares, consequently, the total volume of the Company’s shares rose to 381,517,000. In June 2004, the directors of the Company resolved to increase the share capital by means of capitalization of the share premium and capital reserves of the Company to the extent that 3 additional ordinary shares were issued to each shareholder holding 10 shares of the Company. As the result, the total volume of shares was increased from 381,517,000 to 495,972,100. In July 2005, again the directors of the Company resolved to increase the share capital by means of capitalization of the share premium and capital reserves of the Company to the extent that 3 additional ordinary shares were issued to each shareholder holding 10 shares of the Company Consequently, the total volume of shares was increased from 495,972,100 to 644,763,730. Pursuant to the relevant rules and regulations issued by the PRC authorities and approval from State-owned Asset Supervision and Administration Commission with document No. (2006)405, share segregation reform of the Company was performed in May 2006. Nanshan Group, the non public shares shareholder of the Company, offered RMB11.5 in cash, 1 share and 8 put options, to the holders of every 10 listed A shares. In return the listed A shares shareholders agree to allow the non public shares held by Nanshan Group be converted into listed A shares. From 30 May 2006, the non public A shares held by Nanshan Group (original volume less those offered to tradable A shares shareholders) become listed with restriction on disposal for certain lock up period. As to the put options offered by Nanshan Group, during the required exercise period from 23 May 2007 to 29 May 2007, none was actually exercised by listed A shares shareholders. On 3 July 2007, 23,243,415 shares of A shares held by the Nanshan Group with restriction on disposal exceeded the lock up period and became listed A shares with no restriction on disposal accordingly. The Company and its subsidiaries (collectively the “Group”) are principally engaged in the provision of cargo packing, cargo handling, container terminal, warehousing, land and sea transportation services. These consolidated financial statements have been approved for issue by the Board of Directors on 8 April 2008. -9- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 2 Basis of preparation Before 31 December 2006, the Group prepared financial statements in accordance with the “Accounting System for Business Enterprises“ issued on 29 December 2000 and the Accounting Standards for Business Enterprises and other regulations applicable to the Group that were issued before 15 February 2006 (hereafter referred to as “Previous Accounting Standards and System”). On 1 January 2007, the Group adopted the Basic Standard and 38 specific standards of Accounting Standards for Business Enterprises issued by Ministry of Finance on 15 February 2006, Application Guidance of Accounting Standard for Business Enterprises, Interpretation of Accounting Standards for Business Enterprises and other regulations issued thereafter (hereafter referred to as “the Accounting Standard for Business Enterprises”, “China Accounting Standards” or “CAS”). The financial statements for the year ended 31 December 2007 are the Group’s first annual financial statements prepared in accordance with CAS. On 1 January 2007, the first-time adoption date of CAS, the Group made retrospective adjustments in accordance with the requirements relating to the first-time adoption of CAS stipulated in “Accounting Standard for Business Enterprises No. 38 – First-time Adoption of Accounting Standards for Business” and ‘’ Interpretation No. 1 of Accounting Standards for Business Enterprises”. The comparative figures in respect of 2006 were retrospectively adjusted and restated to reflect these adjustments in accordance with CAS. The retrospective adjustments mainly include the following items: (1) Deferred tax assets and deferred tax liabilities are recognised for the temporary differences arising from the difference between the carrying amount of assets and liabilities and their tax base, and for deductible losses and tax credits that can be carried forward to the future years. (2) Debit balance of equity investment difference arising from purchase of minority interests is recognized as goodwill, and will not be amortized but subject to impairment test at every year end. (3) The long-term equity investments in subsidiaries are adjusted retrospectively in the Company’s financial statements, as if they had been accounted for using cost method of accounting at initial recognition. The reconciliation between the consolidated owners’ equity as at 1 January and 31 December 2006 and the consolidated net profit for the year ended 31 December 2006 presented in accordance with Previous Accounting Standards and System and those presented in accordance with CAS is set out in Note 13. 3 Statement of compliance with the Accounting Standards for Business Enterprises The consolidated and the company’s financial statements for the year ended 31 December 2007 truly and completely present the financial position of the Group and the company as of 31 December 2007, and their financial performance and their cash flows for the year then ended in compliance with the Accounting Standards for Business Enterprises. - 10 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (1) Accounting period The Company’s accounting year starts on 1 January and ends on 31 December. (2) Recording currency The recording currency is Renminbi (RMB) (3) Foreign currency translation (a) Transactions and balances Foreign currency transactions are translated into RMB using the exchange rates prevailing at the dates of the transactions. At the balance sheet date, monetary items denominated in foreign currency are translated into RMB using the spot exchange rate at the balance sheet date. Exchange differences arising from these translations are recognised in profit or loss for the current period, except for those attributable to foreign currency borrowings that have been taken out specifically for the acquisition, construction or production of qualifying assets, which are capitalised as part of the cost of those assets. Non-monetary items denominated in foreign currency that are measured in terms of historical cost are translated at the balance sheet date using the spot exchange rate at the date of the transaction. (b) Group companies The results and financial position of all the group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; (ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); (iii) All resulting exchange differences are recognised as a separate component of equity. - 11 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (4) Cash and cash equivalents For the purpose of the cash flow statement, cash comprises cash in hand and deposits held at call with bank. Cash equivalents refer to short-term and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (5) Financial assets Financial assets are classified into the following categories at initial recognition: financial assets at fair value through profit or loss, receivables, available-for-sale financial assets and held-to-maturity investments. The classification of financial assets depends on the Group’s intention and ability to hold the financial assets. (a) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for the purpose of selling in the short term, which are presented as financial assets held for trading on the balance sheet. (b) Receivables Receivables, including accounts receivable and other receivables, are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market (Note 4 (7)). (c) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories at initial recognition. Available-for-sale financial assets are included in other current assets in the balance sheet if management intends to dispose of them within 12 months of the balance sheet date. (d) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed maturity and fixed or determinable payments that management has the positive intention and ability to hold to maturity. Held-to-maturity investments with maturities less than 12 months of the balance sheet date are included in other current assets or current portion of non-current assets on the balance sheet. - 12 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (5) Financial assets (continued) (e) Recognition and measurement Financial assets are recognised at fair value on the balance sheet when the Group becomes a party to the contractual provisions of the financial instrument. In the case of financial assets at fair value through profit or loss, related transaction costs are recognised in profit or loss for the current period. For other financial assets, transaction costs that are attributable to the acquisition of the financial assets are included in their initial recognition amounts. Financial assets are derecognised when the contractual rights to receive the cash flows from the financial assets have expired, or all substantial risks and rewards of ownership of the financial assets have been transferred to the transferee. Financial assets at fair value through profit or loss and available-for-sale financial assets are subsequently measured at fair value. Investments in equity instruments are measured at cost when they do not have a quoted market price in an active market and whose fair value cannot be reliably measured. Receivables and held-to-maturity investments are measured at amortised cost using the effective interest method. A gain or loss arising from a change in fair value of an available-for-sale financial asset is recognised directly in equity, except for impairment losses and foreign exchange gains and losses arising from the translation of monetary financial assets, until the financial asset is derecognised, at which time the cumulative gain or loss previously recognised in equity is recognised in profit or loss for the current period. Interests on available-for-sale investments in debt instruments are calculated using the effective interest method during the period in which such investments are held and are recognised in investment income. Cash dividends on available-for-sale investments in equity instruments are recognised in investment income when the investee declares the dividends. (f) Impairment of financial assets The Group assesses the carrying amount of a financial asset other than that at fair value through profit or loss at each balance sheet date. If there is objective evidence that the financial asset is impaired, the Group shall determine the amount of any impairment loss. If an impairment loss on a financial asset carried at amortised cost has been incurred, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred). If there is objective evidence that the value of the financial asset recovered and the recovery is related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed and the amount of reversal is recognised in profit or loss. - 13 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (5) Financial assets (continued) (f) Impairment of financial assets (continued) In the case of a significant or prolonged decline in the fair value of an available-for-sale financial asset, the cumulative loss arising from the decline in fair value that had been recognised directly in equity is removed from equity and recognised in impairment loss. For an investment in debt instrument classified as available-for-sale on which impairment losses have been recognised, if, in a subsequent period, its fair value increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the previously recognised impairment loss is reversed and recognised in profit or loss for the current period. For an investment in an equity instrument classified as available-for-sale on which impairment losses have been recognised, if, in a subsequent period, its fair value increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the previously recognised impairment loss is reversed and directly recognised in equity. Impairment losses incurred on an investment in an equity instrument not quoted in an active market and whose fair value cannot be reliably measured are not allowed to be reversed even if the value of the investment is recovered in a subsequent period. (6) Receivables Receivables comprise accounts receivable and other receivables. Accounts receivable arising from sale of goods or rendering of services are initially recognised at fair value by the Group in accordance with the consideration receivable from the buyer under contract or agreement. Receivables are presented at amortised cost using the effective interest method net of provision for bad debts. Receivables that are individually significant are subject to individual impairment assessment, if there is objective evidence that the Group will not be able to collect the full amounts according to the original terms, a provision for impairment of the receivable is established at the difference between the carrying amount of the receivable and the present value of estimated future cash flows. Receivables that are not individually significant together with those receivables that have been individually evaluated for impairment and found not to be impaired are grouped on the basis of similar credit risk characteristics. The impairment losses for the current year are determined, considering the current conditions, on the basis of historical loss experience for the groups of receivables with the similar credit risk characteristics. - 14 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (7) Inventories Inventories include spare parts, fuel and low cost consumables, are stated at cost presented at the lower of cost and net realisable value. Inventories are initially recognized at cost. Cost of spare parts and fuel is determined using the weighted average method. Low cost consumables are expensed upon issuance. Provisions for declines in the value of inventories are determined when the carrying value of the inventories is higher than their net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs to completion and estimated costs necessary to make the sale and relevant taxes. The Group adopts the perpetual inventory system. (8) Hedging activities Hedges are classified as fair value hedges, cash flow hedges, and hedges of net investment in an overseas operation. The group has cash flow hedges in this year. Cash flow hedge refers to a hedging of the risk to changes in cash flow. Such changes in cash flow are attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction and could affect profit or loss. The group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedging transaction. The group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within ‘other gains/ (losses) - net’. Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item affects profit or loss (for example, when the forecast sale that is hedged takes place). The gain or loss relating to the ineffective portion is recognized in the income statement within ‘other gains/ (losses) - net’. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement within other ‘gains/(losses) – net’. - 15 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (9) Long-term equity investments Long-term equity investments comprise the Company’s equity investments in its subsidiaries, the Group’s equity investments in its joint ventures and associates as well as the long-term equity investments where the Group does not have control, joint control or significant influence over the investees, and which are not quoted in an active market and whose fair value cannot be reliably measured. (a) Subsidiaries Subsidiaries are all entities over which the Group is able to control, i.e. has the power to govern the financial and operating policies so as to obtain benefits from their operating activities. The existence and effect of potential voting rights derived from the convertible bonds and warrants that are currently convertible or exercisable are considered when assessing whether the Group has control over the investee entity. The Company accounts for investments in subsidiaries using the cost method in its individual financial statements, and makes the appropriate adjustments using equity method when preparing the consolidated financial statements. Under the cost method of accounting, long-term equity investments are measured at the initial investment cost. Investment income is recognised when the investees declare cash dividends or profit distribution. Investment income is recognised only to the extent of the distributions received from accumulated profits of the investees arising after the investment was made. Cash dividends or distributions received in excess of such profits are regarded as a recovery of the initial cost of the investments. (b) Associates Associates are all entities over which the Group has significant influence on their financial and operating policies. Investments in associates are initially measured at the actual costs and subsequently accounted for using the equity method. Where the initial investment cost exceeds the Group’s share of the fair value of the investee’s identifiable net assets at the time of acquisition, the excess is included in the initial investment cost. Where the initial investment cost is less than the Group’s share of the fair value of the investee’s identifiable net assets at the time of acquisition, the difference is included in profit or loss for the current period and the cost of the long-term equity investment is adjusted accordingly. When using the equity method of accounting, the Group recognised the investment income based on its share of net profit or loss of the investee. The Group discontinues recognising its share of net losses of an investee after the carrying amount of long-term equity investment together with any long-term interests that, in substance, form part of the investor’s net investment in the investee are reduced to zero. However, if the Group has incurred obligations for additional losses and the conditions on recognition of provision are satisfied in accordance with the accounting standard on contingencies, the Group continues recognising the investment losses and the provision. - 16 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (9) Long-term equity investments (continued) (c) Other long-term equity investments Other long-term equity investments where the Group does not have control, joint control or significant influence over the investee, and which are not quoted in an active market and whose fair value cannot be reliably measured are accounted for using the cost method. (d) Impairment of long-term equity investments If the recoverable amount of a long-term equity investments is less than its carrying amount, the carrying amount of the investment is written down to its recoverable amount (Note 4 (16)). (10) Investment property Investment property, including land use rights and buildings that have already been leased out and land use rights held for subsequent transfer on capital appreciation, is measured initially at its actual cost. Subsequent expenditures incurred for an investment property is included in the cost of the investment property when it is probable that economic benefits associated with the investment property will flow to the Group and its cost can be reliably measured, otherwise the expenditure is recognised in profit or loss in the period in which they are incurred. The Group adopts the cost model for subsequent measurement of the investment property. Buildings and land use rights are depreciated or amortised to allocate the costs of these assets to their estimated net residual values over their estimated useful lives. The estimated useful lives, the estimated net residual values expressed as a percentage of cost and the annual depreciation (amortisation) rates of the investment properties are as follows: Estimated Estimated residual Annual depreciation useful lives value (amortisation) rate Buildings 25-33 years 10% 2.7% to 3.6% Land use rights 8-38 years - 2.6% to 12.5% When use of an investment property is changed to owner-occupied property, the investment property is transferred to fixed assets or intangible assets at the date of the change. When owner- occupied property is changed to be held to earn rental or for capital appreciation, the fixed asset or intangible asset is transferred to investment property at the date of the change with the relevant carrying amount at the date of transfer. - 17 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (10) Investment property (continued) The estimated useful life, the estimated net residual value of an investment property and the depreciation (amortisation) method applied are reviewed, and adjusted if appropriate at each financial year-end. An investment property is derecognised on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. The amount of proceeds on sale, transfer, retirement or damage of an investment property less its carrying amount and related taxes and expenses is recognised in profit or loss for the current period. When the recoverable amount of an investment property is less than its carrying amount, the carrying amount of the asset is written down to its recoverable amount (Note 4(16)). (11) Fixed assets Fixed assets comprise harbor facilities, warehouses, container yards and buildings, machinery and equipment, motor vehicles, cargo ships and tugboats, and other equipments. Fixed assets purchased or constructed by the Group are initially measured at cost at the time of acquisition. Fixed assets contributed by the Chinese investors are initially recorded at the value as stated in the investment contract or agreement Subsequent expenditures incurred for a fixed asset are included in the cost of the asset when it is probable that economic benefits associated with the fixed asset will flow to the Group and its cost can be reliably measured. The carrying amount of those parts that are replaced is derecognised. All other subsequent expenditures are recognised in profit or loss in the period in which it is incurred. Fixed assets are depreciated using the straight-line method to allocate the cost of the assets to their estimated residual values over their estimated useful lives. For the fixed assets being provided for impairment loss, the related depreciation charge is prospectively determined based upon the adjusted carrying amounts over their remaining useful lives. - 18 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (11) Fixed assets (continued) The estimated useful lives, the estimated residual values expressed as a percentage of cost and the annual depreciation rates are as follows: Estimated Estimated Annual useful lives residual value depreciation rate Harbor facilities 5-50 years 10% 1.8%-18% warehouses, container yards and buildings 5-40 years 10% 2.25%-18% machinery and equipments 5-15 years 10% 6%-18% motor vehicles, cargo ships and tugboats 5-20 years 10% 4.5%-18% other equipments 5 years 10% 18% The estimated useful life, the estimated net residual value of a fixed asset and the depreciation method applied to the asset are reviewed, and adjusted if appropriate at least at each financial year-end. If the recoverable amount of a fixed asset is less than its carrying amount, the carrying amount of the asset is written down to its recoverable amount (Note 4 (16)). A fixed asset classified as an asset held for sale is presented at the lower of the carrying amount and the fair value less costs to sell an excess of the original carrying amount over the fair value less the costs to sell is as accounted for as an asset impairment loss. The carry amount of a fixed asset is derecognised on disposal or when no future economic benefits are expected from its use or disposal. The amount of proceeds on sale, transfer, retirement or damage of a fixed asset net of its carrying amount and related taxes and expenses is recognised in profit or loss for the current period. (12) Construction in progress Construction in progress is measured at actual cost. The actual cost comprises construction costs and other costs necessarily incurred to bring construction to get ready for its intended use. Borrowing costs that are eligible for capitalization are capitalized as part of the cost of assets until the assets are ready for their intended use. Construction in progress is transferred to fixed assets when the assets are ready for their intended use, and depreciation begins from the following month If the recoverable amount of construction in progress is less than its carrying amount, the carrying amount of the asset is written down to its recoverable amount (Note 4 (16)). - 19 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (13) Intangible assets Intangible assets including land use rights and computer software are measured at actual cost. Intangible assets contributed by the Chinese investors are initially recorded at the value as stated in the investment contract or agreement. (a) Land use rights Land use rights are amortised on the straight-line basis over the period of the land use rights of 20- 50 years. If it is impracticable to allocate the amount paid for the purchase of land use rights and buildings between the land use rights and the buildings on a reasonable basis, the entire amount is accounted for as fixed assets. (b) Computer software Computer software is amortised on a straight-line basis over periods of 3-5 years. (c) Impairment of intangible assets If the recoverable amount of an intangible asset is less than its carrying amount, the carrying amount of the asset is written down to its recoverable amount (Note 4 (16)). (d) Periodical review of useful life and amortisation method The estimated useful life and amortization method for an intangible asset with an indefinite useful life is reviewed, and adjusted if appropriate at each financial year-end. - 20 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (14) Goodwill Goodwill refers to the excess of the cost of an equity investment in an investee over the interest in the fair value of the investee’s identifiable net assets at the date the investment is acquired, or the excess of the cost of a business combination involving enterprises not under common control over the interest in the fair value of the acquirees’ identifiable net assets acquired in the business combination at the acquisition date. Goodwill arising from a business combination is separately presented in consolidated financial statements. The excess of the cost of the equity investments in acquisitions of associates and joint ventures over the fair value of the Group’s share of the investees’ identifiable net assets at the time of the acquisition is included in the long-term equity investments. Goodwill arising from a business combination is tested for impairment annually at least. When performing the impairment test, the carrying amount of goodwill is allocated to asset groups or sets of asset groups that are expected to benefit from the synergies of the business combination. Impairment of assets groups or sets of asset groups refers to Note 4 (16). Goodwill is presented at cost less the cumulative impairment loss at year-end. (15) Long-term prepaid expenses Long-term prepaid expenses include the expenditure for improvements to fixed assets under operating lease and other prepayments incurred but should be borne by the current and subsequent periods and should be amortised over more than one year. Long-term prepaid expenses are amortised on the straight-line basis over the expected beneficial period and are presented at cost net of accumulated amortisation. - 21 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (16) Impairment of assets Goodwill that is separately presented in the financial statements is tested for impairment annually at least, irrespective of whether there is any indication that the assets may be impaired. A fixed asset, an intangible asset, an investment property under the cost model and a long-term equity investment are tested for impairment if there is any indication that an asset may be impaired at the balance date. If the result of the impairment test indicates that the recoverable amount of an asset is less than its carrying amount, a provision for impairment and an impairment loss are recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and the present value of the future cash flows expected to be derived from the asset. A provision for asset Impairment is determined and recognised on an individual asset basis. If it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of the group of assets to which the asset belongs is determined. A group of assets is the smallest group of assets that is able to generate independent cash inflows. Once an impairment loss of these assets is recognised, it is not allowed to be reversed, even if the value of such asset is recovered in the subsequent periods. (17) Borrowing costs The borrowing costs that are directly attributable to the acquisition and construction of a fixed asset that necessarily takes a substantial period of time for acquisition and construction to get ready for its intended use are capitalized as part of the cost of the asset only when capital expenditures for the asset and borrowing costs have been incurred, and the activities of acquisition and construction necessary to prepare the asset for its intended use have commenced. The capitalization of borrowing costs ceases when the asset under acquisition or construction becomes ready for its intended use, the borrowing costs incurred thereafter are recognised in profit or loss for the current period. Capitalization of borrowing costs is suspended during extended periods in which the acquisition or construction of a fixed asset is interrupted abnormally and the interruption lasts for more than 3 months, until the acquisition or construction is resumed. The specific borrowings satisfying the requirements of capitalization constructing or production of any qualifying assets are recognized as interest expenses incurred for specific borrowings against interest receivables incurred for unused loan or investment income/loss incurred for temporary investment. On the other hand, the common borrowings satisfying the requirements of capitalization applies the value, which is equal to weighted average of excess assets payout between cumulative assets payout and assets payout of specific borrowings multiplied by capitalization rate of the common borrowings, to calculate the exact value of capitalized interest of the common borrowings. The capitalization rate depends upon the weighted average rate of the common borrowings, but nevertheless, the total amount of capitalization should not exceed aggregate interest expenses of current borrowings. - 22 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (18) Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred, and subsequently stated at amortised cots using the effective interest method. Borrowings that will be repaid within 12 months (12 months included) after the balance sheet date are classified as the short-term borrowings, and the others are the long-term borrowings. (19) Employee benefits Employee benefits mainly include wages or salaries, bonuses, allowances and subsidies, staff welfare, social security contributions, housing funds, labour union funds, employee education funds and other expenditures incurred in exchange for service rendered by employees. Employee benefits are recognised as a liability in the accounting period in which an employee has rendered service, and as costs of assets or expenses to whichever the employee service is attributable. (20) Deferred tax assets and deferred tax liabilities Deferred tax assets and deferred tax liabilities are calculated and recognised based on the differences arising between the tax base of assets and liabilities and their carrying amount (temporary differences). The deductible losses that can be carried forward to deduct the taxable profit in subsequent years in accordance with the tax law are regarded as the temporary difference and for which a deferred tax asset is recognised. A deferred tax liability is not recognised for a temporary difference arising from the initial recognition of goodwill. For the temporary differences resulting from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit (or deductible loss), the resulting deferred tax assets and deferred tax liabilities are not recognised. At the balance sheet date, deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax assets are recognised for deductible temporary differences and deductible losses and tax credits to the extent that it is probable that the Group’s future taxable profit will be available against which the deductible temporary differences, deductible losses and tax credits can be utilised. Deferred tax assets and deferred tax liabilities are recognised for temporary differences arising from investments in subsidiaries, associates, and interests in joint ventures, except where the Group is able to control the timing of the reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future. - 23 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (21) Revenue recognition The amount of revenue is determined in accordance with the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, rebates, discounts and returns. Revenue is recognised when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Group and when specific criteria have been met for each of the Group’s activities as described below. (a) Rendering of services The Group provides loading/unloading, transportation, logistic agency and other related harbor services to external customers. Revenue arising from provision of services is recognised when services are completed and the amount of revenue and cost can be reliably measured (b) Use by others of enterprise assets Interest income is recognised on a time-proportion basis using the effective interest method. Lease income from an operating lease is recognised on a straight-line basis over the period of the lease. (22) Leases A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. An operating lease is a lease other than a finance lease. Lease payments under an operating lease are recognised on a straight-line basis over the period of the lease, and are either capitalized as part of the cost of another related assets, or charged as an expense for the current period. (23) Profit distribution Dividends distribution to the Company’s shareholders is recognised as a liability in the period in which the dividends are approved by the Company’s shareholders. - 24 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (24) Preparation of consolidated financial statements The scope of consolidated financial statements includes the Company and its subsidiaries. Subsidiaries Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Significant Inter-company balances, transactions and unrealised gain on transactions between group companies are eliminated. The portion of a subsidiary’s equity that is not attributable to the parent is treated as minority interest and presented separately within owners’ equity in the consolidated balance sheet. When preparing the consolidated financial statements, if the accounting policies and the accounting period of a subsidiary are different from those of the Company, the Company will make necessary adjustments to the financial statements of the subsidiary in accordance with the Company’s accounting policies. When preparing the consolidated financial statements, for a subsidiary acquired in a business combination involving enterprises not under common control, its financial statements are adjusted based on the fair value of identifiable net assets at the acquisition date; for a subsidiary acquired in a business combination involving enterprises under common control, the assets, liabilities, operating results and cash flows of the subsidiary are included in the consolidated financial statements from the beginning of the earliest period of the reporting period, as if the business combination had incurred at the beginning of the earliest period of the reporting period. In addition, the subsidiary’s net profit earned before the acquisition date is separately presented in the consolidated income statement. Purchase of minority interests from minority shareholders of the subsidiaries Purchase from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the fair value of the identifiable net assets of the subsidiary. The difference between any consideration paid and the relevant share acquired of the carrying amount of the net assets of the subsidiary which were initially measured at the acquisition date of that subsidiary and subsequently measures on the same basis, after the recognition of the goodwill, is directly recorded in capital reserve, to the extent to the zero balance of the capital reserve. The remaining balance, if any, is directly charged to retained earnings. - 25 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (25) Segment reporting A business segment is a distinguishable component of the Group that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component of the Group that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments. The Group identifies business segments as the primary reporting format while geographical segments as the secondary reporting format respectively. The price of inter-segment transfers is determined by reference to the market price. Expenses indirectly attributable to each segment are allocated among the segments based on the proportion of segment revenue. (26) The determination of the fair value of financial instruments The fair value of a financial instrument that is traded in an active market is determined at the quoted price in the active market. The fair value of a financial instrument for which the market is not active is determined by using a valuation technique. Valuation techniques include using recent market transactions between knowledgeable, willing parties, reference to the current fair value of another instrument that is substantially the same, and discounted cash flow analysis. When a valuation technique is used to establish the fair value of a financial instrument, the valuation technique is whenever possible incorporate factors that market participants would consider, and less relies on the Group’s entity-specific factors. (27) Critical accounting estimates and judgments The Group continually evaluates critical estimates and key assumption based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (a) Critical accounting estimates and assumptions The critical accounting estimates and key assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below: Accounting estimates on impairment of fixed assets The Group tested whether certain fixed assets have suffered any impairment as there were indications that these assets might be impaired at the balance date. As the fair value of such assets could not be estimated reliably, the net realisable value was taken as the recoverable amounts, discounting the estimated future cash flow arising from the assets by the discount rate of the port industry. - 26 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (27) Critical accounting estimates and judgments (continued) (a) Critical accounting estimates and assumptions (continued) If, as at 31 December 2008, the management revises the future cash flow estimates by 10% lower, the Group would have recognised a further impairment against these assets by RMB 2,600,000. If, as at 31 December 2008, the management revises the discount rate estimates by 10% higher, the Group would have recognised a further impairment against these assets by RMB 340,000. If the actual future cash flow higher than the estimate or the actual discount rate lower than the estimate, the impairment is not allowed to be reversed by the Group. (b) Changes in accounting estimates-Fixed asset depreciation period According to the business plan of the Group, part of the general cargo business of the Company and its subsidiary is to move to the Dongguan Machong port, and then reconstruction of the old general cargo port is to be carried out. As a result, some related fixed assets of such business are to be disposed of earlier than the initial estimation. Pursuant to the board resolution passed during the 1st temporary board meeting held in 2008, in order to more accurately reflect the financial position the Group revisited and then shortened estimated remaining useful lives of the fixes assets, with no change in estimated residual values. This change in accounting estimate was prospectively applied, with an effect to reduce the profit before the taxation by approximately RMB 6,830,011 for the year ended 31 December 2007. 5 Taxation The types and rates of taxes applicable to the Group during the current year are set out below. Type Tax rate Taxable basis Enterprise income tax 15 and 17.5% Taxable income Value added tax (“VAT”) 17% and 6% Taxable value added amount (Tax payable is calculated using the taxable sales amount multiplied by the effective tax rate less current period’s deductible VAT input ) Business tax 3% Taxable loading and transportation income 5% Taxable warehousing , agency and rental income - 27 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 5 Taxation (continued) The applicable enterprise income tax rate for the Company and the subsidiaries located in Shenzhen Special Economic Zone is 15%. The overseas subsidiaries are assessed under the governing tax jurisdiction. On 16 March 2007, the National People’s Congress approved the Corporate Income Tax Law of the People’s Republic of China (the “new CIT Law”), which is effective from 1 January 2008. According to Circular of the State Council on the Implementation of Transitional Preferential Enterprise Income Tax Policies (State Council Circular No.(2007) 39), the applicable corporate income tax rates for the enterprises currently enjoying a preferential tax rate at 15% will change to 25%, with a gradual phase in period of 5 years as followings: 2008: 18%, 2009: 20%, 2010: 22%, 2011: 24%, 2012: 25%. As at 31 December 2007, several subsidiaries of the Company are still in the tax holiday of “5 year exemption and 5 year half reduction”, as below described. (a) Profit derived from port services in Shenzhen Chiwan Trains-Grains Terminal Company Limited is entitled 5 years exemption from income taxes followed by 5 years of a 50% tax reduction, commencing from the first cumulative profit-making year net of losses carried forward. 2007 is the tenth profit –making year, and it thus subject to income tax rate of 7.5%. (b) The profit derived from berth #10 of Chiwan Container Terminal Company Limited (the “CCT”) is separately entitled to full exemption from income tax for five years commencing from its first profit making year and a 50% exemption for the following five years. 2007 is the tenth profit-making year of berth #10, enterprise income tax has been provided at a rate of 7.5%. (c) The profit derived from berth #11 of CCT is separately entitled to full exemption from income tax for five years commencing from its first profit making year and a 50% exemption for the following five years. 2007 is the seventh profit-making year of berth #11, enterprise income tax has been provided at a rate of 7.5%. (d) The profit derived from berth #12 of CCT is separately entitled to full exemption from income tax for five years commencing from its first profit making year and a 50% exemption for the following five years. 2007 is the forth profit-making year of berth #12, no enterprise income tax has been provided. (e) The profit derived from berth #13 of CCT is separately entitled to full exemption from income tax for five years commencing from its first profit making year and a 50% exemption for the following five years when certain requirement met. 2007 is the third profit-making year of berth #13, but is the first year for it to meet the requirement of related tax circular, no enterprise income tax has been provided. For 2005 and 2006, although they are profit-making, they have not met the abovementioned requirement, enterprise income tax was provided at the rate of 15%. Chiwan Wharf Holdings (H.K.) Limited (the “WHK”) and Chiwan Shipping (H.K.) Company Limited are subject to tax rate of 17.5% according to Hong Kong tax law. - 28 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 6 Subsidiaries (1) Subsidiaries of the Company acquired under common control Registered capita (in ten thousand Yuan unless % voting right Place of otherwise Nature of business and % interest held by held by the Name of subsidiaries registration stated) principal activities the Company Company Direct Indirect Direct Indirect Shenzhen Chiwan Harbour Container Shenzhen, 10,820 Container handling and 60% 40% 60% 40% Company Limited PRC other port services Shenzhen Chiwan Shipping and Shenzhen, 600 Cargo shipping 60% 40% 60% 40% Transportation Company Limited PRC Shenzhen Chiwan Transportation Shenzhen, 1500 container transportation, 75% 25% 75% 25% Company Limited (a) PRC vehicle and port machinery maintenance Chiwan Container Terminal Company Shenzhen, USD95,300K Container handling and 51% 4% 51% 4% Limited (b) PRC other port services Chiwan Shipping (H.K.) Company Hong Kong, HKD800K Shipping agency service - 100% - 100% Limited PRC All above subsidiaries and the Company are controlled by Nanshan Group. (2) Subsidiaries of the Company acquired under non-common control or in other ways Shenzhen Chiwan International Freight Shenzhen, 500 Shipping agency service 100% - 100% - Agency Company Limited PRC Shenzhen Chiwan Terminal Company Shenzhen, 5,000 Port services 95% 5% 95% 5% Limited PRC Shenzhen Chiwan Trains-Grains Shenzhen, 4,500 Warehousing of grains 75% 25% 75% 25% Terminal Company Limited PRC Chiwan Wharf Holdings (H.K.) Limited Hong Kong, HKD1,000K Shipping agency service 100% - 100% - PRC Shenzhen Chiwan Oriental Logistics Shenzhen, 1,000 Warehousing, cargo 50% 50% 50% 50% Company Limited PRC transportation and delivering Dongguan Chiwan Wharf Company Dongguan, 26,130 Port services, 25% 75% 25% 75% Limited (c) PRC warehousing and other logistic services Grossalan Investments Limited British Virgin USD 1 Investing - 100% - 100% Islands - 29 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 6 Subsidiaries (continued) (a) According to a resolution of the Board of Directors of Shenzhen Chiwan Transportation Company Limited (the “CTC”) in July 2006, the registered capital of CTC increased from RMB 7,000,000 to RMB 15,000,000, the increment is transferring in from capital surplus. The increase was verified by certified public accountant and related registration records have been updated up to 31 December 2006. (b) According to a resolution of the Board of Directors of CCT dated 20 March 2004, the registered capital of the CCT increased from USD 44,000,000 to USD 63,500,000, injected in cash by the joint investors proportionally. According to a resolution of the Board of Directors of CCT dated 5 August 2005, the registered capital of CCT increased again from USD63,500,000 to USD70,500,000, transferred from CCT’s retained earnings as at 31 December 2004, based on the joint investors’ equity proportion. According to a resolution of the Board of Directors of CCT dated 30 April 2007, the registered capital of CCT increased again from USD70,500,000 to USD95,300,000, transferred from CCT’s retained earnings as at 31 December 2005, based on the joint investors’ equity proportion. The abovementioned capital increments have been verified by certified public accountants. As at 31 December 2007, related registration records in local commercial bureau have been updated. (c) In August 2006, approved by Dongguan Bureau of Foreign Trade & Economic Cooperation with document DWJMZ(2006)1889, Dongguan Chiwan Wharf Company Limited (the “DGCHW”) was incorporated in Dongguan city by the Company and WHK, with registered capital of RMB200,000,000. According to a resolution of the Board of Directors of DGCHW dated 22 August 2007, the registered capital of DGCHW would increase from RMB 200,000,000 to RMB 261,300,000, injected in cash by the joint investors proportionally. As at 31 December 2007, the actually paid-in capital increased to RMB 212,260,000, verified by certified public accountants, and related registration records in local commercial bureau have been updated. - 30 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (1) Cash at bank and at hand 31 D 31 D Cash on hand 14,175 38,403 Cash at bank 780,731,023 167,917,648 Other cash balances 842,336 766,820 781,587,534 168,722,871 The cash and bank balances foreign currency portfolio is as follows: 31 December 2007 31 December 2006 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent USD 5,751,162 7.30 41,983,483 1,321,934 7.80 10,311,085 HKD 93,174,853 0.94 87,584,362 53,239,499 1.00 53,239,499 129,567,845 63,550,584 (2) Notes receivable 31 D 31 D Bank acceptance notes 1,167,600 1,650,444 (3) Accounts receivable and other receivables (a) Accounts receivable 31 December 2006 31 December 2007 Accounts receivable 240,525,710 217,362,248 Current year Current year additions reversals Less: provision for bad debts (201,995) (203,613) 48,550 (357,058) 240,323,715 217,005,190 - 31 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (3) Accounts receivable and other receivables (continued) (a) Accounts receivable (continued) The ageing of accounts receivable and related provisions for bad debts are analysed below: 31 December 2007 31 December 2006 % of total Provision for % of total Provision for Amount balance bad debts Amount balance bad debts Within 1 year 217,005,306 99.9% (175,940) 239,935,046 99.8% - 1 to 2 years 82,374 - (8,237) 333,450 0.1% (33,345) 2 to 3 years 64,425 - (19,328) 77,280 - (24,276) Over 3 year 210,143 0.1% (153,553) 179,934 0.1% (144,374) 217,362,248 100% (357,058) 240,525,710 100% (201,995) Accounts receivable are analysed by customer’s categories as follows: 31 December 2007 31 December 2006 Provision % of total for bad % of % of total Provision for % of Amount balance debts balance Amount balance bad debts balance Receivables that are individually significant 152,252,344 70.0% - - 177,460,309 73.8% - - Others 65,109,904 30.0% (357,058) 0.5% 63,065,401 26.2% (201,995) 0.3% 217,362,248 100% (357,058) 0.2% 240,525,710 100% (201,995) 0.1% The management categorized the top five of accounts receivable in “receivables that are individually significant”. All these accounts receivable are aged within 1 year and the management considered no provision for bad debts is needed. As at 31 December 2007, amount due to Fair Wind Shipping Company Limited of RMB175,940 was aged within one year. But as the customer was in dormancy and its bank account has been frozen due to litigation, the management considered the accounts receivable due to it was uncollectible, and 100% provision for bad debt was therefore made. As At 31 December 2007, no balances included in above accounts receivable are due from the shareholders of the Company who hold over 5% shares with voting right. As at 31 December 2007, the aggregate amount of the Group’s five largest accounts receivable balances was RMB152,252,344, being 70% of the total accounts receivable balances, all aged within one year. - 32 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (3) Accounts receivable and other receivables (continued) (a) Accounts receivable (continued) The following balances were denominated in foreign currencies: 31 December 2007 31 December 2006 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent USD 6,048,599 7.30 44,154,773 9,335,100 7.80 72,813,780 HKD 104,335,367 0.94 98,075,245 95,698,758 1.00 95,698,758 142,230,018 168,512,538 (b) Other receivables 31 December 2006 31 December 2007 Payment on behalf of third parties 2,971,049 8,369,186 Staff advances 1,007,097 1,767,477 Deposits 915,046 967,056 Others 244,454 1,173,795 5,137,646 12,277,514 Current year Current year addition reduction Less: Provision for bad debts (2,372,488) (87,235) - (2,459,723) 2,765,158 9,817,791 The aging of other receivable and the related bad debts provision are analysed below: 31 December 2007 31 December 2006 % of total Provision for % of total Provision for Amount balance bad debts Amount balance bad debts Within 1 year 9,139,149 74.4% - 2,717,240 52.9% (437,351) 1 to 2 years 927,349 7.6% (481,487) 383,870 7.5% (16,548) 2 to 3 years 193,933 1.6% (41,448) 54,068 1.0% (5,420) Over 3 years 2,017,083 16.4% (1,936,788) 1,982,468 38.6% (1,913,169) 12,277,514 100% (2,459,723) 5,137,646 100% (2,372,488) - 33 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (3) Accounts receivable and other receivables (continued) (b) Other receivables (continued) Other receivables are analysed by customer’s categories as follows: 31 December 2007 31 December 2006 Provision % of total for bad % of % of total Provision for % of Amount balance debts balance Amount balance bad debts balance Receivables that are individually significant 5,625,681 45.8% (1,551,780) 27.6% 2,678,199 52.1% (2,071,867) 77.4% Others 6,651,833 54.2% (907,943) 13.6% 2,459,447 47 (300,621) 12.2% 12,277,514 100% (2,459,723) 20.0% 5,137,646 100% (2,372,488) 46.2% The management categorized the top five of other receivables in “receivables that are individually significant”. They were all aged within 1 year and no provision was considered needed. The group did not have any balances which were due from parties having 5% or above shareholdings in the Company. As at 31 December 2007, the aggregate amount of the Group’s five largest other receivable balances was RMB5,625,681, being 46% of the total accounts receivable balances, all aged within one year. The following balances were denominated in foreign currencies: 31 December 2007 31 December 2006 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent USD 23,360 7.30 170,528 - 7.80 - HKD 7,869,909 0.94 7,397,714 514,883 1.00 514,883 7,568,242 514,883 - 34 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (4) Advance to suppliers 31 December 2007 31 December 2006 % of total % of total Aging Amount balance Amount balance Within 1 year 6,272,274 100% 3,721,650 100% The group did not have any balances which were due to parties having 5% or above shareholdings in the Company. No balance of advance to suppliers is denominated in foreign currencies (2006: Nil). (5) Inventories 31 December 2007 31 December 2006 Cost - Spare parts 24,336,003 23,244,108 Fuel 2,956,676 2,166,660 Low cost consumables 92,795 948,819 27,385,474 26,359,587 Less: Provision for declines in the value of inventories Spare parts (2,756,073) (2,756,073) 24,629,401 23,603,514 No movement in balance of provision for declines in the value of inventories during the year. - 35 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (6) Hedging instrument 31 December 2007 31 December 2006 Foreign currency forward contract 39,459,166 - To hedge the potential foreign currency risk, CCT, a subsidiary of the Company, entered into a Foreign Currency Forward Contract (the “Forward Contract”) with Shenzhen Shekou branch of Bank of China (the ”SKBOC”). According to the Forward Contract, CCT will exchange HK 800,000,000 into RMB with SKBOC during September 2007 to August 2008 at agreed exchange rates. Up to 31 December 2007, CCT has made no such exchange of HKD. As at 31 December 2007, the fair value of the Forward Contract was RMB 39,495,166. Management considered the Forward Contract are highly effective for hedging purpose, and hedging accounting was adopted. Fair value of the contract was recorded in “Capital reserve–others”. (7) Available-for-sale financial assets 31 December 2006 Current year Current year 31 December 2007 transferred in reduction Available-for-sale equity instruments - 10,520,000 - 10,520,000 On 15 May 2006, the share segregation reform of Jiangsu Ninghu Expressway Company Limited (the “Ninghu Expressway”) was complete. Effective from 16 May 2007, the 1,000,000 shares of Ninghu Expressway held by the Company has no restriction on disposal. The Company then transferred the investment cost of these stocks of RMB 1,120,000 from “Long term equity investment – other investments” (Note 7(9(b))) to “Available for sale financial assets”. As at 31 December 2007, the market value of the stocks in Shanghai Stock Exchange was RMB 10,520,000. The Company adjusted the book value of the stocks according to this fair value and recorded the movement of RMB 9,400,000 to “Capital reserve” (Note 7(29)). - 36 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated and the Company’s financial statements (continued) (8) Long term receivables 31 December 2007 31 December 2006 Media Port Investments Limited 209,135,388 195,834,378 On 30 September 2002, China Merchants Holdings (International) Company Limited (the “CMHI”, a listed company in Hong Kong) and Shenzhen South Oil (Group) Company Limited (the “SSOG”) entered into an agreement called the “Agreement on Cooperation and Development of Mawan Port” (the “Development Agreement”) to incorporate three joint ventures to construct and operate the berth 0#, 5#, 6#, 7# and 8# in Mawan Port. According to the Development Agreement, CMHI and the Group will incorporate an associate (Note 7 (9)) Media Port Investments Limited (the “MPIL”) first with equal percentage of equity held respectively. MPIL then incorporates the abovementioned three joint ventures together with SSOG, at 60% and 40% equity interest therein respectively. The total investment by the shareholders in these three Mawan joint ventures amounts to RMB 1,200,000,000. In December 2002, the three joint ventures, Shenzhen Mawan Wharf Co., Ltd (“SMW”), Shenzhen Mawan Port Service Co., Ltd (“SMP”), and Shenzhen Mawan Terminals Co., Ltd (“SMT”) were incorporated. In 2005, they have been put into formal commercial operation. In 2003, according to the arrangement under the Development Agreement, WHK, a subsidiary of the Company, provided an interest free shareholder’s loan of HKD 169,815,000 to MPIL, and MPIL then injected the amount to the three Mawan companies as their paid-in capital. In 2006, the interest free shareholder’s loan was increased by HKD 39,320,388 and the increment was paid to the three companies by MPIL as paid-in capital. As at 31 December 2007, the RMB equivalent of the shareholder’s loan amounted to RMB 195,834,378(2006: RMB 209,135,388) The difference between the total investment in these three companies over their paid-in capital is financed by bank loans. As at 31 December 2007, the total paid-in capital of these three Mawan companies is RMB 735,000,000. The shareholder’s loans to MPIL are unsecured, interest-free and have no fixed term of repayment. The Group has confirmed that it will not call for repayment of the loans within one year from balance sheet date. - 37 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (9) Long-term equity investments 31 December 2007 31 December 2006 Associates (a) 322,062,363 160,797,192 Other long-term equity investments (b) 17,037,500 18,157,500 339,099,863 178,954,692 Less: Provision for impairment of long-term equity investments (c) (3,121,500) (3,121,500) 335,978,363 175,833,192 The long-term equity investments of the Group are not subject to restriction on conversion into cash or restriction on remittance of investment income. (a) Associates For the year ended 31 December 2007 31 December 2007 Place of Nature of Registered interest voting right Net registration business capital held held Total assets Total liabilities Revenue profit/(loss) Shenzhen Cyber- harbour Network Shenzhen, Computer net RMB Co., Ltd PRC services 5 million 37.5% 37.5% 43,770,177 8,238,805 38,119,17 6,522,12 China Merchants Maritime & Logistics Shenzhen, RMB 300 (Shenzhen) Ltd. PRC Warehousing million 40% 40% 938,212,996 665,677,336 72,446,03 (1,692,85 British Virgin HKD HK HK HK MPIL Islands Investing USD 10 50% 50% 720,178,291 418,320,73 294,701,12 302,055,09 Amount of total assets, total liabilities, revenue and net profit of Shenzhen Cyber-harbour Network Co., Ltd set out above is extracted from its financial statement prepared in accordance with the Previous Accounting Standards and System; amount of total assets, total liabilities, revenue and net loss of China Merchants Maritime & Logistics (Shenzhen) Ltd. set out above is extracted from its financial statement prepared in accordance with the CAS. The Group has recognized the shares of profit of associates based on those figures. MPIL is an investment holding company, according to its financial statements prepared under the International Financial Reporting Standards (“IFRS”) (only the standalone accounts of the company is prepared, no consolidated financial statement needs to be prepared under IFRS), the above amounts of total assets, total liabilities, revenue and net profit are extracted. The Group recognized the share of its profit based on the financial statements of MPIL and the financial statements of MPIL’s subsidiaries. - 38 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) 9 Long-term equity investments (continued) (a) Associates (continued) Investment in associates is set out below: Original Additional investment 31 December investment in Share of profit 31 December cost 2006 current year of associates 2007 Shenzhen Cyber-harbour Network Co., Ltd 1,875,000 10,967,541 - 2,356,724 13,324,265 China Merchants Maritime & Logistics (Shenzhen) Ltd. * 80,000,000 69,691,407 40,000,000 (677,143) 109,014,264 MPIL** 139,932 80,138,244 - 119,585,590 199,723,834 82,014,932 160,797,192 40,000,000 121,265,171 322,062,363 * According to a resolution of the Board of Directors of the Company dated 23 August 2007, the investment in China Merchants Maritime & Logistics (Shenzhen) Ltd. (the “CMML”) is to be increased by RMB40,000,000, with no change in the percentage of equity held in CMML. Up to 31 December 2007, the increased capital has been injected. ** The Company held 50% equity in MPIL, but has no control over it. Thus MPIL was treated as an associate of the Company. (b) Other long-term equity investment Name of investees 31 D Current year transfe 31 D China Ocean Shipping Agency (Shenzhen) Company Limited 13,510,000 - 13,510,000 Shenzhen Petro-chemical Industry (Group) Company Limited. 3,500,000 - 3,500,000 Guangdong Guang Jian Group Company Limited 27,500 - 27,500 Jiangsu Expressway (Note 7(7)) 1,120,000 (1,120,000) - 18,157,500 (1,120,000) 17,037,500 - 39 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (9) Long-term equity investments (continued) (c) Provision for impairment of long-term equity investments 31 December 2006 & 31 December 2007 Other long-term equity investment -Shenzhen Petro-chemical Industry (Group) Company Limited (3,117,800) -Guangdong Guang Jian Group Company Limited (3,700) (3,121,500) (10) Investment property Land use rights Total Buildings (Note 7(13)(a)) Cost 31 December 2006 & 31 December 2007 12,513,785 31,508,965 44,022,750 Accumulative depreciation/ amortisation 31 December 2006 (2,888,250) (10,589,980) (13,478,230) Current year depreciation (266,511) (613,766) (880,277) 31 December 2007 (3,154,761) (11,203,746) (14,358,507) Net book value 31 December 2007 9,359,024 20,305,219 29,664,243 31 December 2006 9,625,535 20,918,985 30,544,520 - 40 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (11) Fixed assets warehouses, motor vehicles, Harbor container yards machinery and cargo ships other facilities and buildings equipments and tugboats equipments Total Cost 31 December 2006 909,376,089 509,270,684 1,642,573,022 265,322,889 69,705,346 3,396,248,030 Transfer from construction in progress 14,100,761 5,310,092 17,297,413 435,463 4,026,469 41,170,198 Other current year additions 742,245 251,328 9,746,475 16,981,757 2,385,668 30,107,473 Current year disposals - (8,427,405) (11,483,172) (10,179,396) (1,331,308) (31,421,281) 31 December 2007 924,219,095 506,404,699 1,658,133,738 272,560,713 74,786,175 3,436,104,420 Accumulated depreciation 31 December 2006 146,838,772 125,886,392 535,641,899 97,038,269 31,147,171 936,552,503 Current year depreciation(a) 16,882,858 29,470,462 106,355,366 25,953,679 11,018,034 189,680,399 Current year disposals - (3,688,680) (10,181,158) (8,960,240) (1,106,002) (23,936,080) 31 December 2007 163,721,630 151,668,174 631,816,107 114,031,708 41,059,203 1,102,296,822 Provision for impairment loss 31 December 2006 - - - 157,335 - 157,335 Current year charges(a) 60,695,381 - - - 60,695,381 31 December 2007 - 60,695,381 - 157,335 - 60,852,716 Net book value 31 December 2007 760,497,465 294,041,144 1,026,317,631 158,371,670 33,726,972 2,272,954,882 31 December 2006 762,537,317 383,384,292 1,106,931,123 168,127,285 38,558,175 2,459,538,192 (a) As mentioned in Note 4(27(b)), according to the business plan of the Group, part of the general cargo business will be moved to Dongguan Machong Port, and some of the currently used warehouses, container yards and buildings for general cargo business are expected to be demolished before 2010. The directors considered it was more appropriate to shorten the estimated remaining useful lives of these fixed assets accordingly. Meanwhile, affected by the plan, the recoverable amount of the related fixed assets is estimated to be lower than the net book value, impairment provision (Note 4(27(a)) of RMB 57,419,469 was then made for the difference accordingly. As at 31 December 2007, ownership certificates of buildings (“Buildings ownership Certificates”) for certain buildings of the Group with carrying amounts of approximately RMB 30,090,317 (cost: RMB 53,609,090) had not yet been obtained by the Group because the official certificates of the lands on which these buildings located had not been obtained (note 7 (13)). At 31 December 2007, the buildings and equipments with net book value of approximately RMB 21,878,932 (cost: RMB 218,789,323) were fully depreciated but still in use. In 2007, depreciation expenses of RMB 179,216,641(2006: RMB 186,659,825) were charged to cost of revenue, RMB 10,463,758 (2006: RMB 8,844,115) to general and administrative expenses, respectively. - 41 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (12) Construction in progress Transfer to fixed assets Budget 31 December Current year during the Other Name of projects 2006 additions current year reduction Construction projects for berth 2#& 3# at Machong Port 199,680,000 - 118,075,186 - - Land for berth 2# -#5 at Machong Port (a) 261,180,912 19,612,319 57,778,396 - - Two quay cranes 91,304,000 - 46,112,657 - - Reconstruction of stacking yard for berth 7# & 8# 20,430,000 18,387,042 1,222,818 - - Related construction for berth 2# &3# at Machong Port 147,695,212 3,947,300 3,473,000 - - Tugboat 1# of Chiwan 35,000,000 3,181,523 3,941,994 - - Renovation of wireless network 2,366,557 - 2,007,584 - - Reconstruction of fire-fighting system at jetty 5,965,860 4,596,953 3,685,526 (8,282,479) - Installation of two RTGs 15,800,000 7,110,000 8,690,000 (15,800,000) - Others - 9,765,984 22,679,324 (17,087,719) (4,571,596) 66,601,121 267,666,485 (41,170,198) (4,571,596) - 42 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (12) Construction in progress (continued) (a) In March 2006, the Company entered into the agreement of “Frame contract for cooperation on usage of Machong Port in Dongguan” with the Dongguan Humen Port Administration Commission to purchase a l and depth of 700 meters from the front of terminal, together with the use right of 1,200 meters coast line, Machong Port at a consideration of RMB 260,000,000. Up to 31 December 2007, the Company has paid consideration and was applying for the related certificate of the land use right. Borrowing costs for purchase of Tugboat 1# of Chiwan amounting to RMB 113,706 were capitalized during the yea (2006: 3.0% - 4.7%). (13) Intangible assets 31 December Current year Curre Original cost 2006 additions amor Land use rights – leased (a) 1,419,159,549 1,125,935,951 - (35,07 Land use rights– purchased (b) 52,188,988 45,926,309 - (1,04 Computer software 17,024,225 5,341,613 501,001 (2,97 1,488,372,762 1,177,203,873 501,001 (39,09 As at 31 December 2007, there was no need to make any impairment provision against the intangible assets of t - 43 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (13) Intangible assets (continued) The land use rights of the Group are mainly composed of: (a) Group has leased from Nanshan Group several plots of land with a total area of 752,699 sq. meters within Chiwan port for a lease term of 20-50 years with up-front payments of RMB 684,453,783 made. The lands were injected by Shenzhen Investment Holding Corporation in 1982 as part of the consideration in acquiring the equity interests of Nanshan Group. As the PRC laws prevailing at that time did not provide for a mechanism for the issuance of official certificates of the land use rights, Nanshan Group has not obtained the land use right certificates of the leased land so far. In June 2003 and September 2004, CCT entered into a land use agreement with Nanshan Group and leased two plots of land, one with an area of 117,827.2 sq. meters for 40.5 years and the other with an area of 171,089,478 sq. meters for 39 years, at the consideration of RMB 271,002,558 and RMB 444,832,643 respectively. Also no official certificates for such lands were obtained by Nanshan Group. Nanshan Group released irrevocable and unconditional letters of indemnity to the Group in March 2001, June 2003 and September 2004, undertaking to indemnify the Group against any losses arising from or in connection with the leased land use rights. The directors of the Company therefore consider there is no impairment risk nor any contingent liabilities related to the above assets. (b) In December 2000, the Company together with CMHI acquired a plot of land in Mawan port berth 8# with an area of 106,990 sq. meters through a bid. The Company owns 51% of interest in the land at a cost of RMB 52,188,988. The related land use right transfer agreement was entered into with the Land Bureau by the Company on behalf of both the Company and CMHI. According to the Development agreement mentioned in Note 7(8), the land use right should be transferred to one of the three Mawan companies established under the terms of the Development agreement within five years starting 2002. As at 31 December 2007, the transfer is in process and the land is being used by SMT, one of the three Mawan companies, free of charge. On 8 January 2008, the Company entered into a contract regarding the transfer of the land use right of berth 8# in Mawan Port with SMT, details are set out in Note 12. - 44 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (14) Goodwill 31 December 2007 & 31 December 2006 CCT 10,858,898 The goodwill arose from the acquisition of the minority interests in CCT, being the difference of the additional cost of investment and the Group’s share of the fair value of the identifiable net assets in CCT. Goodwill is tested for impairment annually. As at 31 December 2007, the recoverable amount of the asset group with goodwill was higher than its carrying value, the Group therefore assessed that there was no need for any impairment against the goodwill. (15) Long-term prepaid expenses 31 December Current year Current year 31 December Accumulative Original cost 2006 addition amortization 2007 amortization Port maintaines expenditure (a) 10,617,736 2,083,393 5,930,101 (2,789,862) 5,223,632 5,394,104 Golf membership 1,995,190 930,195 - (306,939) 623,256 1,371,934 Leasehold improvement 1,358,624 569,354 - (320,568) 248,786 1,109,838 Rental for land 758,565 4,213 - (4,213) - 758,565 Firefighting facilities project 583,692 583,692 - (583,692) - 583,692 Building decoration 1,513,233 1,513,233 - (671,860) 841,373 671,860 Furnitures 1,087,127 1,109,739 - (658,986) 450,753 636,374 Construction expenditure of Tonggu sea-road (b) 56,720,960 - 56,720,960 - 56,720,960 - Preparation for container yard in Front Sea area (c ) 28,197,392 16,559,507 208,888 (16,768,395) - 28,197,392 Purchase of hand shoulder 378,711 378,711 - (378,711) - 378,711 Others 3,884,150 92,567 3,727,270 (2,503,669) 1,316,168 2,567,982 107,095,380 23,824,604 66,587,219 (24,986,895) 65,424,928 41,670,452 (a) Port maintenance expenditures are capital expenditures for dredging. (b) In early 2007, Shenzhen municipal government commenced the construction project of a public sea-route in the western port area of Shenzhen City. As the terminal business of the Group will be benefited from such project, the Group was required to bear a portion of the construction cost. According to the allocation, the Group contributed RMB 56,720,960 which was recorded in long-term prepaid expenses. The public sea-route is to put into normal operation from year 2008, as the result, the Group will start to amortise the expenditure then over the beneficial period. - 45 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (15) Long-term prepaid expenses (continued) (c) It represented the expenditure for preparation of the leased container yard, and will be amortized during the lease period. (16) Provision for impairment of assets Current year addition Current year reduction Bad debt provisions (Note 7(3)) Provision for declines in the value of inventories (Note 7(5)) Provision for impairment of long- term equity investments (Note 7(9)) Provision for impairment of fixed assets (Note 7(11)) 6 6 6 (17) Short-term borrowings 31 December 2007 31 December 2006 Bank loans - unsecured 1,221,310,000 968,750,000 The weighted average interest rate of the short-term borrowings in 2007 is 4.79% per annum (2006: 4.89%). (18) Notes payable 31 December 2007 31 December 2006 Bank acceptance notes 6,687,150 18,116,596 - 46 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (19) Accounts payable As at 31 December 2007, except for the amount due to Nanshan Group (Note 10(4)), the Group did not have any other balances which were due to parties having 5% or above shareholdings in the Company. As at 31 December 2007, accounts payable with aging over 1 year amounting to RMB 9,569,501(2006: RMB 3,230,129) was mainly accounts payable for construction and purchases of equipments. As the related construction projects have not been completed yet, the accounts have not been settled. The following balances were denominated in foreign currency: 31 December 2007 31 December 2006 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent USD 818 7.30 5,971 - 7,80 - HKD 8,670 0.94 8,150 - 1.00 - 14,121 - (20) Advances from customers As at 31 December 2007, the advances from customers were all aged within 1 year, and the Group did not have any balances which were due to parties having 5% or above shareholdings in the Company. The balances were substantively denominated in RMB. - 47 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (21) Employee benefits payable Current year Current year 31 December 31 December 2006 additions reductions 2007 Wages and salaries, bonuses, allowances and subsidies 33,272,458 141,035,356 (130,639,624) 43,668,190 Staff welfare 1,204,834 20,085,190 (20,145,313) 1,144,711 Social security contributions 42,599 18,256,603 (18,299,202) - Including: Medical insurance - 3,738,536 (3,738,536) - Basic pensions 42,599 10,611,907 (10,654,506) - Enterprise pension fund - 2,197,259 (2,197,259) Unemployment insurance - 222,635 (222,635) - Work injury insurance - 1,220,045 (1,220,045) - Maternity insurance - 266,221 (266,221) - Housing funds - 7,782,546 (7,782,546) - Labor union and employee education funds 2,282,040 5,970,250 (4,742,583) 3,509,707 Others - 119,722 (119,602) 120 36,801,931 193,249,667 (181,728,870) 48,322,728 (22) Dividends payable As at 31 December 2007, dividends payables were cash dividends needed to be paid to the minority shareholders according to profit distribution scheme of 2007 by Shenzhen Chiwan Harbour Container Company Limited, one of our subsidiary companies (2006: N/A). (23) Taxes payable 31 December 2007 31 December 2006 Enterprise income tax payable 19,863,217 22,884,991 Value-added-tax payable 268,528 209,788 Business tax payable 5,056,795 5,066,289 Others 681,934 458,416 25,870,474 28,619,484 - 48 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (24) Other payables 31 December 2007 31 December 2006 Due to Nanshan Group (Note 10(4)) 200,006,183 - Refunds of Harbor Construction Fee (a) 48,170,579 24,653,687 Temporary receipts 17,023,731 20,896,748 Security expense payable 6,882,789 - Payable for serviced obtained 3,582,383 2,056,255 Deposits received 3,567,477 4,330,243 Payable for SST system 2,424,860 2,424,860 Rental payable 1,490,000 1,785,000 Audit fee payable 1,350,000 1,280,000 Due to employee 814,394 4,718,331 Others 8,643,590 5,669,127 293,955,986 67,814,251 (a) The amount was refunds of Port Construction Fee received by the Company and CCT from Shenzhen Communication bureau. According to the related circular “Port construction fee supervising method”issued by the Ministry of Finance, the use of the refunds should be controlled strictly and separately for port facility construction. As at 31 December 2007, except for the amount due to Nanshan Group (Note 10(4)), the Group did not have any other payables which were due to parties having 5% or above shareholdings in the Company. As at 31 December 2007, other payables with aging over 1 year amounting to RMB 5,087,118 (2006: RMB 5,309,632) are mainly temporary receipts. As the creditors are in restructuring processes and the obligations for settlement of the credits have not been clarified, the amounts have not been settled. Foreign currency balances in other payables: 31 December 2007 31 December 2006 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent USD 67,525 7.30 492,933 212,792 7.80 1,659,778 HKD 1,257,389 0.94 1,181,946 1,485,526 1.00 1,485,526 1,674,879 3,145,304 - 49 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (25) Deferred revenue 31 December 2006 - the portion of current liabilities 5,889,494 - the portion of non-current liabilities 90,716,755 96,606,249 Amortisation (Note 7(33)) (5,655,000) Exchange difference (5,830,208) Less: the portion of current liabilities (5,292,500) 31 December 2007 79,828,541 Residual useful years 16-1 Deferred revenue is amortised on a straight-line basis over the expected beneficial period of 20 years and is presented at cost net of accumulated amortisation. (26) Long-term borrowings 31 December 2007 31 December 2006 Bank borrowings(a) - unsecured 46,820,000 131,400,000 Others (Note 10(3, 4)) 226,608,800 92,000,000 273,428,800 223,400,000 Less: current portion of long-term borrowings (273,428,800) (81,400,000) - 142,000,000 (a) Bank borrowings - unsecured As at the 31 December 2007, the balance of bank borrowings is HKD 50,000,000, and is repayable within 1 year. The weighted average interest rate of the long-term borrowings in 2007 is 5.05% per annum (2006: 5.05%). (b) Undrawn committed borrowing facilities The Group has the following undrawn committed borrowing facilities as at 31 December 2007: Expiring within 1 year 653,600,000 Expiring in 1 to 2 years 474,512,850 Expiring in 2 to 3 years 1,032,020,000 Expiring more than 3 years 304,370,000 2,464,502,850 The undrawn committed borrowing facilities mentioned above would be used for the commitment capital expenditure (Note 11). - 50 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (26) Long-term borrowings (continued) (b) Undrawn committed borrowing facilities (continued) As most of the bank borrowings as at 31 December 2007 were repayable within the next 12 months, the Group had net current liabilities of RMB 1,148.5 million. The directors of the Company are confident that the Group can roll over the current borrowings and has sufficient bank borrowing facilities and other financial resources to repay bank borrowings when they fall due. Therefore, the financial statements of the Group are prepared on going concern basis. (27) Deferred tax assets and deferred tax liabilities (a) Deferred tax assets 31 December 2007 31 December 2006 Deductible Deductible Deferred tax temporary Deferred tax temporary assets difference assets difference Provision for asset impairment 12,820,915 60,695,381 72,288 481,920 Annual bonus and long-term bonus for motivation 6,651,488 47,963,969 4,176,678 27,844,520 Depreciation of fixed assets 4,685,043 24,655,513 1,413,200 9,421,338 Compensation for Pingnan railway 4,689,545 26,053,028 5,210,605 34,737,367 Others 173,645 2,975,580 398,703 2,658,020 29,020,636 162,343,471 11,271,474 75,143,165 (b) Deferred tax liabilities 31 December 2007 31 December 2006 Taxable Taxable Deferred tax temporary Deferred tax temporary liabilities difference liabilities difference Change in fair value of available for sale equity instruments 1,692,000 9,400,000 - - Change in fair value of hedging instrument of CCT 2,754,249 39,459,166 - - 4,446,249 48,859,166 - - As disclosed in Note 5, the corporate income tax rate applicable to the Company and its subsidiaries in Shenzhen city will be changed from 1 January 2008. Since deferred tax assets are determined using the tax rates that are expected to apply when the related assets are realized or the related liabilities are settled, the carrying amount of deferred tax assets and deferred tax liabilities that have been recognized before the issuance of new CIT law and are expected to be utilized after 1 January 2008 were adjusted by the Company and its subsidiaries using the then applicable tax rates. The difference of RMB 6,333,537 is included in income taxes for the current year (Note 7 (39)). - 51 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (28) Share capital Current year Current year 31 December 2006 addition reduction 31 December 2007 Shares with restriction on disposal: State and PRC legal person shares (Note 1) 370,802,900 - (23,243,415) 347,559,485 Shares held by senior management 237,624 - (59,407) 178,217 Including: PRC public shares 129,386 - (32,347) 97,039 Including: Domestically listed foreign shares 108,238 - (27,060) 81,178 Total of shares with restriction on disposals 371,040,524 - (23,302,822) 347,737,702 Shares without restriction on disposals: PRC public shares 93,936,014 23,275,762 - 117,211,776 Domestically listed foreign shares 179,787,192 27,060 - 179,814,252 Total of shares without restriction on disposals 273,723,206 23,302,822 - 297,026,028 Total 644,763,730 23,302,822 (23,302,822) 644,763,730 (29) Capital surplus 31 December 2006 Current year additions 31 December 2007 Capital premium 142,786,083 - 142,786,083 Other capital surplus Change in fair value of available-for- sale financial assets (Note 7(7)) -Total (Note 7(7)) - 9,400,000 9,400,000 -Deferred tax liabilities(Note 7(27)) - (1,692,000) (1,692,000) Change in fair value of hedging instrument of CCT (a) -Total - 21,702,541 21,702,541 -Deferred tax liabilities - (1,514,837) (1,514,837) Transfer from the balance of capital surplus recognised under previous accounting system (b) (2,781,133) - (2,781,133) Others - 676,556 676,556 140,004,950 28,572,260 168,577,210 (a) The fair value change of the hedge instrument of CCT (Note 7(6)) and the deferred tax liabilities (Note 7(27)) were recognized in capital surplus by the Group in the proportion of 55%, the proportion of equity interest in CCT held by the Group. - 52 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (29) Capital surplus (continued) (b) Balance of capital surplus recognized under previous accounting system is mainly including: - During 2003 to 2005, the Group provided shareholder’s loan of RMB 100,000,000 to Mawan companies. According to related circular CK(2001)64 regarding accounting treatment of sales of assets between related parties issued by the Ministry of Finance, that part of interest received that exceeded the market interest rate of RMB 7,124,745 was recorded in capital surplus. - On 1 January 2006, CCT changed its recording currency from Hong Kong dollar to Renminbi yuan. According to the relevant PRC regulations, the exchange differences arising from translation of foreign capital and other equity accounts are recorded in capital surplus. The Group debited the portion of CCT’s capital and other equity accounts of RMB 10,086,842, calculated based on the proportion of equity interest the Group held in CCT, to capital surplus. (30) Surplus reserve 31 December 2006 & 31 December 2007 compulsory surplus reserve 394,710,655 general surplus reserve 699,406,238 1,094,116,893 According to the Articles of Association of the Company and the Company Law of the PRC, the Company has to appropriate 10% of its net profit after making good of the deficit of prior years to the statutory surplus reserve, until where the reserve balance has reached 50% of the paid in share capital of the Company. With the approval obtained from the relevant government authorities, the statutory surplus reserve can be utilized to offset any deficit or to increase the share capital of the Company. The appropriation to discretion surplus reserve is to be proposed by the board of the directors of the Company and approved by the annual general meeting of the shareholders. The discretion surplus reserve can be utilized to offset the deficit or increase the share capital. As mentioned in Note 2, the Company made retrospective adjustments on the long-term equity investments in subsidiaries etc., and the retained earnings as at 31 December 2006 was therefore reduced by RMB1,283,336,346. In accordance with the requirements relating to the first-time adoption of CAS, the surplus reserve as at 31 December 2006 should be retrospectively adjusted accordingly. Given the profit appropriations in previous years were approved by the Board of Directors of the Company and annual general meetings of the shareholders, the directors of the Company consider no retrospective adjustment on surplus reserves needed to be made. - 53 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (30) Surplus reserve (continued) In accordance with a resolution at the Board of Directors meeting dated 8 April 2008, the Company proposes to make no retrospective adjustment on surplus reserves as mentioned above. Surplus reserve, including discretion surplus reserve of RMB 699,406,238 and statutory surplus reserve of RMB 181,586,732, as at 31 December 2006 are proposed to be utilized to offset the deficit of RMB 880,992,970 of the Company as at 31 December 2006. If the proposal is approved by the annual general meeting of the shareholders, the Board of Directors will propose to appropriate 10% (2006: 10%, RMB61,396,483) of the net profit RMB 97,107,200 for the year ended 31 December 2007 to the statutory surplus reserve and no appropriation to discretion surplus reserve for the year ended 31 December 2007 (2006: 30%, RMB184,189,448). The proposed appropriations are to be approved by the annual general meeting of the shareholders, and have not been recorded in the financial statements for the year ended 31 December 2007. (31) Profit distribution Dividend of Rmb371,383,908 in respect of 2006 was approved by the annual general meeting of the shareholders dated 11 May 2007, and have been paid to shareholders during the year (paid in 2006: RMB 481,638,506). In accordance with a resolution at the Board of Directors meeting dated 8 April 2008, if the proposal on surplus reserve to offset deficit (Note 7(30)) is approved in the annual general meeting of the shareholders, the Board of Directors will propose a dividend of RMB 6.78 for each 10 shares of the issued shares as at 31 December 2007 which was 644,763,730 in total, with an aggregated amount of RMB 437,149,808.94. The proposed dividend is yet to be approved by the annual general meeting of the shareholders, and has not been recognized as a liability as at 31 December 2007. (32) Minority Interests Minority Interests attributing to minority interests 31 December 2007 31 December 2006 International Enterprise Co., Ltd. 310,421,38 449,442,486 Hidoney Developments Co., Ltd. 248,337,10 359,553,989 558,758,48 808,996,475 International Enterprise Co., Ltd and Hidoney Developments Co., Ltd hold 25% and 20% equity in CCT respectively. - 54 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (33) Revenue and cost 31 December 2007 31 December 2006 Revenue from main operations (a) 1,948,519,701 1,905,312,912 Revenue from other operations (b) 55,042,829 43,325,511 2,003,562,530 1,948,638,423 (a) Revenue and cost from main operations: 2007 2006 Reve Co Reven C Load and unload services 1,792,466,103 712,534,016 1,766,086,926 652,943,754 Transportation service 209,554,802 134,484,633 200,209,338 138,419,302 Agency and others services 7,279,875 - 7,114,429 - Elimination (60,781,079) (60,781,079) (68,097,781) (68,097,781) 1,948,519,701 786,237,570 1,905,312,912 723,265,275 The service income from the top 5 customers which amounted to RMB 1,368,051,791 accounted for 70% of the Group’s total revenue from main operation. (b) Other revenue and cost 2007 2006 Reven Co Reven C Other logistic services in port 12,166,049 2,275,226 11,772,786 3,433,369 Lease income 12,993,829 1,427,143 10,677,735 2,204,154 Security fee 13,089,996 - 7,328,202 - Amortization of deferred revenue (Note 7(26)) 5,655,000 - 5,850,750 - Sales of material 2,762,749 1,190,229 2,061,720 1,970,055 Containers management fee 2,507,060 - 2,044,450 - Documentation fee and Others 5,868,146 1,107,527 3,589,868 - 55,042,829 6,000,125 43,325,511 7,607,578 - 55 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (34) Tax and levies on operations 2007 2006 Business tax 68,067,390 65,717,41 City maintenance and construction tax 941,666 645,12 Educational surcharge 100,397 69,089 Others 65,274 - 69,174,727 66,431,623 (35) Finance expenses 2007 2006 Interest expenses -Interests on borrowings 64,554,136 57,855,907 Less: interest income (3,971,541) (1,560,322) Exchange losses 31,708,873 19,352,333 Less: Exchange gains (64,819,633) (27,219,732) Others 895,431 2,621,935 28,367,266 51,050,121 (36) Impairment losses 2007 2006 Impairment losses for bad debts provision 242,298 197,453 Impairment losses for fixed asset 60,695,381 - Impairment losses for long-term investment - (378,500) 60,937,679 (181,047) (37) Investment income 2007 2006 Income on available-for-sale financial assets 190,000 - Share of profit of investees under equity method of accounting (Note 7 (9(a))) 121,265,171 62,019,636 Profit/ cash dividends declared by investees under cost method of accounting 6,635,215 75,053 128,090,386 62,094,689 - 56 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (38) Non-operating income and expenses (a) Non-operating income 2007 2006 Gain on disposal of fixed assets 1,842,697 2,716,849 Others 831,735 233,749 2,674,432 2,950,598 (b) Non-operating expenses 2007 2006 Loss on disposal/scrapping of fixed assets 5,426,415 944,479 Non-welfare donation 36,000 38,000 Penalty expenses 7,885 85,806 Fixed assets inventory shorts - 69,030 Others 5,732 405,213 5,476,032 1,542,528 - 57 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (39) Income tax expenses 2007 2006 Current income tax 68,016,399 92,919,907 Deferred income tax (17,749,162) (11,271,474) 50,267,237 81,648,433 The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weight average tax rate applicable to profit of the consolidated entities as follows: 2007 2006 Profit before income tax 1,042,771,441 1,041,830,198 Income tax calculated at the applicable tax rate 15% 156,415,716 156,274,530 Effect of different tax rate in other tax jurisdictions 30,510 44,660 Effect on tax losses of subsidiaries which did not validate deferred tax 1,910,604 1,732,164 Effect of tax holidays (83,297,131) (57,791,274) Effect of change in tax rate due to issuance of new CIT law (note 7(27))) (6,333,537) - Income not subject to tax (19,213,558) (9,852,739) Utilisation of previously recognized non-deductible expense - (7,389,518) Expenses not deductible for tax purposes 754,633 1,244,139 Effect of tax refund for re-investment - (2,613,529) Income tax expenses 50,267,237 81,648,433 - 58 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (40) Earning per share (a) Earnings per share - basic Basic earning’s per share is calculated by dividing the profit attributable to shareholders of the Company by the weighted average number of ordinary shares in issue during the year. 2007 2006 Consolidated profit attributable to shareholders of the Company 663,872,167 626,836,148 Weighted average number of ordinary shares in issue 644,763,730 644,763,730 Basic earnings per share 1.030 0.9 (b) Earnings per share - diluted The Company had not potential dilutive outstanding equity instruments issued as at 31 December 2007 and 2006, accordingly the diluted earnings per share are the same as the basic ones. (41) Notes to consolidated cash flow statements (a) Reconciliation from the net profit to the cash flows from operating activities 2007 2006 Net profit 992,504,204 960,181,765 Add: Provisions for assets impairment 60,937,679 (181,047) Depreciation of fixed assets and investment property 190,560,676 197,858,200 Amortization of intangible assets 39,090,252 24,013,245 Amortisation of long-term prepaid expenses 24,986,895 24,014,562 Losses/(gains) on disposal of fixed assets 793,389 (1,703,340) Losses on scrapping of fixed assets 2,790,329 - Finance expenses 2,804,672 57,855,907 Investment income (128,090,386) (62,094,689) Increase in deferred tax assets (17,749,162) (11,271,474) Increase in inventories (1,025,887) (1,542,056) Decrease/(increase) in operating receivables 13,496,275 (24,926,917) Increase/(decrease) in operating payables 16,394,05 (16,191,686) Net cash flows from operating activities 1,197,492,98 1,146,012,470 - 59 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (41) Notes to consolidated cash flow statements (continued) (b) Investing and financing activities that do not involve cash receipts and payments 2007 2006 - - (c) Net increase in cash 2007 2006 Cash at end of year 781,587,534 168,522,871 Less: cash at beginning of year (168,522,871) (143,257,200) Net increase in cash 613,064,663 25,265,671 (d) Cash and cash equivalents 31 December 2007 31 December 2006 Cash at bank and in hand - Cash in hand 14,175 38,403 - Cash at bank 780,731,023 167,917,648 - Other 842,336 766,820 781,587,534 168,722,871 Less: restricted cash at bank - (200,000) Cash and cash equivalents at end of year 781,587,534 168,522,871 - 60 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (41) Notes to consolidated cash flow statements (continued) (e) Cash paid relating to other operating activities In the cash flow statement, cash paid relating to other operating activities comprises: 2007 2006 Lease expenses 61,338,093 50,609,505 Compensation for Ping Nan railway - 34,737,365 Port expenses 8,283,309 20,474,056 Office expenses & utilities 12,842,965 13,358,709 Car expenses 11,746,082 11,885,920 Asset insurance fee 7,280,186 5,522,892 Entertainment 6,814,189 7,266,308 Consulting & auditing fee 6,157,034 2,019,841 Travel & accommodation 2,737,588 2,624,713 Advertisements & exhibition expense 2,082,233 2,075,885 Bank charge - 1,535,108 Others 2,849,500 8,889,169 122,131,179 160,999,471 8 Segment information (1) Primary reporting format - business segments (a) Segment information as at and for the year ended 31 December 2007 is as follows: Load and unload operation Transportation Agency service Elimination Total Revenue 1,846,201,686 212,754,368 7,483,197 (62,876,721) 2,003,562,530 Including: revenue from external customers 1,846,201,686 149,877,647 7,483,197 - 2,003,562,530 Inter-segment revenue - 62,876,721 - (62,876,721) - Operating expenses 951,299,721 158,234,451 4,897,044 (62,876,721) 1,051,554,495 Segment results 894,901,965 54,519,917 2,586,153 - 952,008,035 Less: unallocated expenses (34,525,380) Add: Investment income 128,090,386 Operating profit 1,045,573,041 Segment assets 4,229,394,082 225,874,542 55,403,290 (67,313,266) 4,443,358,648 Add: unallocated assets 1,013,977,070 Total assets 5,457,335,718 Segment liabilities 1,331,413,792 118,371,370 46,974,836 (67,313,266) 1,429,446,732 Add: unallocated liabilities 883,267,235 Total liabilities 2,312,713,967 Depreciation and amortization 234,083,935 20,407,758 146,130 - 254,637,823 Provisions for asset impairment 60,892,586 13,177 31,916 - 60,937,679 Capital expenditures 377,796,902 18,403,019 1,092,550 - 397,292,471 - 61 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 8 Segment information (continued) (1) Primary reporting format - business segments (continued) (b) Segment information as at and for the year ended 31 December 2006 is as follows: Load and unload operation Transportation Agency service Elimination Total Revenue 1,808,737,796 204,665,406 7,285,789 (72,050,568) 1,948,638,423 Including: revenue from external customers 1,808,737,796 132,614,838 7,285,789 - 1,948,638,423 Inter-segment revenue - 72,050,568 - (72,050,568) - Operating expenses 831,122,499 159,041,722 3,049,530 (72,050,568) 921,163,183 Segment results 977,615,297 45,623,684 4,236,259 - 1,027,475,240 Less: unallocated expenses (49,147,801) Add: Investment gains 62,094,689 Operating profit 1,040,422,128 Segment assets 3,791,406,884 220,307,905 34,374,746 (57,652,650) 3,988,436,885 Add: unallocated assets 617,161,729 Total assets 4,605,598,614 Segment liabilities 1,388,634,368 127,538,556 32,851,346 (57,652,650) 1,491,371,620 Add: unallocated liabilities 42,797,203 Total liabilities 1,534,168,823 Depreciation and amortization 229,828,220 15,954,846 102,941 - 245,886,007 Provisions for asset impairment 111,188 91,686 (5,421) - 197,453 Capital expenditures 98,582,550 38,905,026 13,244,449 150,732,025 (2) Secondary reporting format - geographical segments Revenue from external customers 2007 2006 Mainland PRC 2,000,386,249 1,944,335,426 Hong Kong 3,176,281 4,302,997 2,003,562,530 1,948,638,423 Total assets 31 December 2007 31 December 2006 Mainland PRC 5,423,102,391 4,588,814,325 Hong Kong 34,233,327 16,784,289 5,457,335,718 4,605,598,614 - 62 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 9 Notes to the Company’s financial statements (1) Accounts receivable and other receivables (a) Accounts receivable 31 December 2006 31 December 2007 Accounts receivable 19,944,530 9,648,084 Current year Current year additions reversals Less: provision for bad debts (983) - 33 (950) 19,943,547 9,647,134 The ageing of accounts receivable and related provisions for bad debts are analysed below: 31 December 2007 31 December 2006 % of total Provision for % of total Provision for Amount balance bad debts Amount balance bad debts Within 1 year 9,647,134 100% - 19,943,547 100% - Over 3 year 950 - (950) 983 - (983) 9,648,084 100% (950) 19,944,530 100% (983) Accounts receivable are analysed by customer’s categories as follows: 31 December 2007 31 December 2006 Provision % of total for bad % of total Provision for Amount balance debts proportion Amount balance bad debts proportion Receivables that are individually significant 5,741,865 59.5% - 14,381,982 72 - Others 3,906,219 40.5% (950) 0.0% 5,562,548 27 (983) 0.0% 9,648,084 100% (950) 0.0% 19,944,530 100 (983) 0.0% The managements categorized the top five of accounts receivable in “receivables that are individually significant”. They are all aged within one year and the management considered no provision for bad debts is needed. The Company did not have any balances which were due from parties having 5% or above shareholdings in the Company. As at 31 December 2007, the aggregate amount of the Company’s five largest accounts receivable balances was RMB 5,741,865, being 59.5% of the total accounts receivable, all aged within one year. - 63 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 9 Notes to the Company’s financial statements (continued) (1) Accounts receivable and other receivables (continued) (b) Other receivables 31 December 2006 31 December 2007 Loans to subsidiaries (Note 10(6)) 248,472,265 109,205,265 Others 28,195,248 39,014,828 276,667,513 148,220,093 Current year Current year additions reversal Less: provision for bad debts (1,605,500) (228) - (1,605,728) 275,062,013 146,614,365 The ageing of receivables and related provisions for bad debts are analysed below: 31 December 2007 31 December 2006 % of total Provision for % of total Provision for Amount balance bad debts Amount balance bad debts Within 1 year 146,526,730 98.9% - 275,369,451 99.5% (437,351) 1 to 2 years 439,351 0.3% (437,551) 99,825 - - 2 to 3 years 55,775 - - 30,000 - - Over 3 year 1,198,237 0.8% (1,168,177) 1,168,237 0.5% (1,168,149) 148,220,093 100% (1,605,728) 276,667,513 100% (1,605,500) Other receivables as analysed by customer’s categories as follows: 31 December 2007 31 December 2006 Provision % of total for bad % of total Provision for Amount balance debts proportion Amount balance bad debts proportion Receivables that are individually significant 131,727,635 88.9% - 253,321,951 91.6% - - Others 16,492,458 11.1% (1,605,728) 9.7% 23,345,562 8 .4 % (1,605,500) 6.9% 148,220,093 100% (1,605,728) 1.1% 276,667,513 100% (1,605,500) 0.6% - 64 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 9 Notes to the Company’s financial statements (continued) (1) Accounts receivable and other receivables (continued) (b) Other receivables (continued) The management categorized the top five of other receivables in “receivables that are individually significant”. They are all aged within one year and the management considered no provision for bad debts is needed. The Company did not have any balances which were due from parties having 5% or above shareholdings in the Company. As at 31 December 2007, the aggregate amount of the Company’s five largest other receivables balances was RMB131,727,635, being 88.9% of the total other receivables, all aged within one year. (2) Long-term equity investments 31 December 2007 31 December 2006 Subsidiaries (a) 650,328,199 515,121,500 Associates (b) 122,338,529 80,658,948 Other long-term equity investments (Note7(9)(b)) 17,037,500 18,157,500 Less: provision for impairment loss (Note7(9) (c)) (3,121,500) (3,121,500) 786,582,728 610,816,448 The long-term equity investments of the Company are not subject to restriction on conversion into cash or restriction on remittance of investment income. - 65 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 9 Notes to the Company’s financial statements (continued) (2) Long-term equity investments (continued) (a) Subsidiary companies Initial investment Subsequent 31 December Current year 31 December costs additions 2006 addition 2007 Shenzhen Chiwan Terminal Company Limited 47,500,000 - 47,500,000 - 47,500,000 Shenzhen Chiwan International Freight Agency Company Limited 5,000,000 - 5,000,000 - 5,000,000 Shenzhen Chiwan Harbour Container Company Limited 15,000,000 55,920,000 70,920,000 - 70,920,000 Shenzhen Chiwan Transportation Company Limited 7,000,000 - 7,000,000 - 7,000,000 Chiwan Wharf Holdings (H.K.) Limited 1,070,000 - 1,070,000 - 1,070,000 Shenzhen Chiwan Shipping and Transportation Company Limited 6,000,000 - 6,000,000 - 6,000,000 Shenzhen Chiwan Trains-Grains Terminal Company Limited 33,750,000 - 33,750,000 - 33,750,000 Chiwan Container Terminal Company Limited 65,201,611 258,679,889 323,881,500 97,141,699 421,023,199 Shenzhen Chiwan Oriental Logistics Company Limited 5,000,000 - 5,000,000 5,000,000 Dongguan Chiwan Wharf Company Limited 15,000,000 - 15,000,000 38,065,000 53,065,000 200,521,611 314,599,889 515,121,500 135,206,699 650,328,199 (b) Associates Initial investment 31 December Current year Share of profit 31 December costs 2006 addition of associates 2007 Shenzhen Cyber-harbour Network Co., Ltd 1,875,000 10,967,541 - 2,356,724 13,324,265 China Merchants Maritime & Logistics (Shenzhen) Ltd. (7(9)(a)) 80,000,000 69,691,407 40,000,000 (677,143) 109,014,264 81,875,000 80,658,948 40,000,000 1,679,581 122,338,529 - 66 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 9 Notes to the Company’s financial statements (continued) (3) Operating income and operating cost 2007 2006 Revenue from main operations (a) 183,189,359 196,489,518 Revenue from other operations (b) 9,523,674 8,765,628 192,713,033 205,255,146 (a) Revenue and cost from main operations 2007 2006 revenue cost revenue cost load and unload operation 183,189,359 146,949,307 196,489,518 141,860,094 Revenue derived from top 5 customers was 102,171,606 in total, which represented 56% of the main operation revenue. (b) Other revenue and cost 2007 2006 revenue cost revenue cost Other logistic services in port 115,439 - 297,678 - Lease income 4,012,587 913,670 4,180,719 1,726,221 Security fee 377,841 - - - Sales of materials 423,309 - 29,197 - Containers management fee 2,507,060 - 2,044,450 - Documentation fee 1,130,915 - 1,202,950 - Others 956,523 261,137 1,010,634 240,060 9,523,674 1,174,807 8,765,628 1,966,281 (4) Investment income 2007 2006 Shares possessing of or bearing from invested company’s net profit or loss according to Equity Method 1,679,581 (3,234,552) Dividend declared to be extended by invested company according to Cost Method 971,258,197 650,487,532 Interest income for short-term loans to subsidiaries (Note 10(6)) 8,825,748 9,896,645 981,763,526 657,149,625 - 67 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 10 Related parties and related party transactions (1) The parent company and subsidiaries The general information of the subsidiaries is set out in Note 6 (a) General information of the parent company Place of registration Nature of business Land development, port service and transportation, Nanshan Group Shenzhen industry and commerce, tour, real estate and others (b) Registered capital and changes in registered capital of the parent company 31 December Current year Current year 31 December 2006 additions decreases 2007 Nanshan Group 500,000,000 - - 500,000,000 (c) The proportion of interests and voting rights in the Company held by the parent company 31 December 2006 31 December 2007 % interest held % voting rights % interest held % voting rights Nanshan Group 57.51% 57.51% 57.51% 57.51% (2) Nature of related parties that do not control/ are not controlled by the company Name of related party Relationship with the Group China Petroleum Supply Base Co. Ltd (“CPSB”) a fellow subsidiary of the Company Shenzhen Chixiao Engineering Construction Co. Ltd a fellow subsidiary of the Company (“Chixiao Engineering”) Shenzhen Haiqin Engineering Supervision Co. Ltd a subsidiary of the shareholder of the (“Haiqin Engineering”) parent company SMW, SMP and SMT (“Mawan companies”) Indirect associates of the Company, and common key management personnel with the Company Shenzhen Cyber-harbour Network Co., Ltd Associate of the Company MPIL Indirect associate of the Company Shenzhen Nantian Oilmills Company (“Nantian common key management personnel Oilmills”) with the Company Shenzhen Southsea Grains Industries Limited common key management personnel (“Southsea Grains”) with the Company - 68 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 10 Related parties and related party transactions (continued) (3) Related party transactions – Between the Group and related parties (a) Expenses for operating lease The related parties’ pricing policies on lease of container yards and office land to from Nanshan Group and CPSB are based on negotiation. 2007 2006 Nanshan Group 33,574,399 29,039,063 CPSB 1,857,107 1,309,984 35,431,506 30,349,047 In 2007, the operating lease payment to related parties accounted for 69.52% of total operating lease payment (2006: 59.97%)。 (b) Services received The related parties’ pricing policies on services received are based on negotiation. 2007 2006 % of total serv % of total Amount services Chixiao Engineering–project 1,222,818 17,230,151 42.17% Haiqin Engineering – project management service 2,568,039 100% 1,910,205 100% Shenzhen Cyber-harbour Network Co., Ltd – network service 6,506,814 100% 7,014,389 100% 10,297,671 26,154,745 (c) Services provided The related parties’ pricing policies on services provided are based on negotiation. 2007 2006 % of total % of total Amount services services Mawan companies – transportation on road 20,618,631 14.55% 13,194,999 9.69% Nantian Oilmills – load and unload service 14,211,661 0.79% 12,692,631 Southsea Grains – load and unload service 2,215,573 0.12% 1,626,559 Southsea Grains – leasing 3,656,040 28.14% 3,656,040 40,701,905 31,170,229 - 69 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 10 Related parties and related party transactions (continued) (3) Related party transactions – Between the Group and related parties (continued) (d) Loan Interest rates of loans from Nanshan Group are determined based on the market interest rate. 2007 2006 Nanshan Group - loans obtained from 159,188,000 92,000,000 - loans repaid (18,728,000) - - short-term borrowing repaid - (100,000,000) In September 2007, the Company repaid the loan of HKD 20,000,000 obtained from Nanshan Group in 2006. Related interest expense paid in 2007 was RMB104,208(2006: RMB948,567). In July 2007, WHK obtained a loan of HKD 170,000,000 with loan period of 17 months from Nanshan Group at annual interest rate of 5.62%. Related interest expense paid in 2007 was HKD 4,004,827 (2006: HKD 1,662,137). (e) Key management compensation 2007 2006 Key management compensation 3,546,000 3,260,000 (4) Receivables from and payables to related parties – for the Group Accounts receivable 31 December 2007 31 December 2006 Nantian Oilmills 1,436,270 230,858 Mawan companies 1,318,892 1,548,824 Southsea Grains 1,071,885 1,099,307 3,827,047 2,878,989 As at 31 December 2007, the Group’s accounts receivable from related parties accounted for 1.8% of total accounts receivable balances (2006: 1.1%). Long-term receivables 31 December 2007 31 December 2006 MPIL(7(8)) 195,834,378 209,135,388 As at 31 December 2007, the Group’s long-term receivables from related parties accounted for 100% of total long-term receivable balances (2006: 100%). - 70 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 10 Related parties and related party transactions (continued) (4) Receivables from and payables to related parties – for the Group (continued) Accounts payable 31 December 2007 31 December 2006 Chixiao Engineering 7,312,396 6,619,849 Nanshan Group 1,975,064 2,299,662 Haiqin Engineering 1,308,356 1,651,187 10,595,816 10,570,698 As at 31 December 2007, the Group’s accounts payable to related parties accounted for 18.5% of total accounts payable balances (2006: 11.5%). Other payables 31 December 2007 31 December 2006 Nanshan Group (a) 200,006,183 - Mawan companies (b) 2,251,895 4,848,354 202,258,078 4,848,354 As at 31 December 2007, the Group’s payable to related parties accounted for 68.8% of total other payables balances (2006: 7.15%). (a) The amount RMB 200,000,000 is obtained from Nanshan Group on 14 December 2007 for payment of certain bidding deposits. It was interest-free and has been repaid on 9 January 2008 because the Company has withdrawn from the bid. (c) The Company cooperates with Mawan companies in marketing promotion activity. Some common expenses incurred in the cooperation are allocated to both parties based on certain reasonable criteria. For those payments and receipts made on behalf, the Company and Mawan companies recorded the amounts in other receivables or other payables. Long-term loans and current portion of long-term loans 31 December 2007 31 December 2006 Nanshan Group - Long-term loans - 92,000,000 - Current portion of long-term loans 226,608,800 - 226,608,800 92,000,000 As at 31 December 2007, the Group’s loans from Nanshan Group accounted for 15.2% of total loan balances (2006: 7.7%). - 71 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 10 Related parties and related party transactions (continued) (5) Related party transactions – between the Companies and subsidiaries (a) Rental paid to subsidiaries The price of operating lease of machinery and equipments from subsidiaries are determined by negotiation. 31 December 2007 31 December 2006 Chiwan Container Terminal Company Limited 703,600 753,200 (b) Services received from subsidiaries The pricing policies on services received from subsidiaries are based on negotiation. 31 December 2007 31 December 2006 Shenzhen Chiwan Transportation Company Limited 5,457,389 6,962,173 (6) Amounts due to/from subsidiaries – the Company Other Receivables 31 December 2007 31 December 2006 Short-term loans to subsidiaries (a) Chiwan Container Terminal Company Limited - 116,000,000 Shenzhen Chiwan Shipping and Transportation Company Limited 48,145,265 44,412,265 Shenzhen Chiwan Trains-Grains Terminal Company Limited 28,000,000 38,000,000 Shenzhen Chiwan Terminal Company Limited 17,000,000 34,000,000 Shenzhen Chiwan Transportation Company Limited 15,000,000 15,000,000 Shenzhen Chiwan International Freight Agency Company Limited 1,060,000 1,060,000 109,205,265 248,472,265 Others Chiwan Wharf Holdings (H.K.) Limited 23,582,370 20,909,686 Shenzhen Chiwan Terminal Company Limited 7,440,868 - Shenzhen Chiwan Trains-Grains Terminal Company Limited 2,972,849 - 33,996,087 20,909,686 143,201,352 269,381,951 - 72 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 10 Related parties and related party transactions (continued) (6) Amounts due to/from subsidiaries – the Company (continued) (a) The interest rates of short loans to subsidiaries are set based on market interest rate. In 2007, the Company received interest income on such loans amounting to RMB 8,825,748 (2006: RMB 9,896,645). Long-term receivables 31 December 2007 31 December 2006 Shenzhen Chiwan Harbour Container Company Limited 121,976,183 121,976,183 Chiwan Wharf Holdings (H.K.) Limited 11,004,284 11,004,284 Shenzhen Chiwan Transportation Company Limited 18,223,795 18,223,795 Shenzhen Chiwan Shipping and Transportation Company Limited 5,797,462 5,797,462 Dongguan Chiwan Wharf Company Limited 60,000,000 - 217,001,724 157,001,724 The above long-term receivables are the amounts excess contribution made by the Company over the registered capital of respective subsidiaries. They are interest-free and with no fixed term of repayment. The Company has confirmed that it will not call for repayment of these receivables within 12 months of the balance sheet date. Other Payables 31 December 2007 31 December 2006 Chiwan Wharf Holdings (H.K.) Limited 6,454,967 6,454,967 11 Commitments (1) Capital commitments Capital expenditures contracted for at the balance sheet date but not recognised in the financial statements are as follows: 31 December 2007 31 December 2006 Harbour facilities 216,201,134 3,222,647 Land use rights 188,242,254 241,568,593 Machinery and equipments 41,245,000 8,690,000 Motor vehicles, cargo ships and tugboats - 9,225,000 Buildings - 1,350,623 Others 1,120,050 539,000 446,808,438 264,595,863 - 73 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 11 Commitments (continued) (2) Operating lease commitments The future aggregate minimum lease payments due under non-cancellable operating leases are as follows: 31 December 2007 31 December 2006 Within one year 5,466,576 35,016,055 Between 1 and 2 years 2,168,748 2,834,322 Between 2 and 3 years 1,261,548 1,913,696 More than 3 years 4,936,341 11,641,900 13,833,213 51,405,973 12 Events after the balance sheet date On 8 January 2008, the Company entered into a contract regarding the transfer of land use right of berth 8# in Mawan Port (the “Transfer Agreement”). According to the Transfer Agreement, the Company agreed to sell the land use right of berth 8# in Mawan Port together with the construction thereon at a consideration of RMB 99,508,500, same as its purchase cost (including original purchase price of RMB 94,770,000, commission of RMB 2,843,100 and handling charge of RMB 1,895,400, of which the Company born 51% and the other bidding partner CMHI born 49%) to SMT. 13 First-time adoption of CAS The reconciliation between the consolidated owners’ equity at the beginning and ending of 2006 and the consolidated net profit for the year ended 31 December 2006 presented in accordance with the previous Accounting Standards and System, and that presented in accordance with CAS is as follows: 31 December 1 January 2006 2006 2006 Consolidated Consolidated Consolidated owners’ equity net profit owners’ equity Amount presented in accordance with the Previous Accounting Standards and System 2,107,330,402 613,964,828 2,246,672,103 Transferred from minority interests 928,166,071 332,909,298 808,560,156 Reversal of amortisation of goodwill 2,602,359 2,581,960 5,184,319 Recognition of deferred tax assets - 11,271,474 11,271,474 Pre-operating expenses incurred in 2006 by a subsidiary - (545,795) (545,795) Others 287,534 - 287,534 Amount presented in accordance with CAS 3,038,386,366 960,181,765 3,071,429,791 The above reconciliation items and their amounts are the same with the “reconciliation from consolidated owners’ equity presented in accordance with Previous Accounting Standards and System to those presented in accordance with CAS” disclosed in the annual report of 2006. - 74 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 (All amounts in RMB unless otherwise stated) [English translation for reference only] 14 Net profit after extra ordinary gains and losses 2007 2006 Net profit 992,504,204 960,181,765 Plus: Net losses/(gains) on disposal of non-current 3,583,718 (1,703,340) Less: Other non-operating expenses-net (782,118) 295,270 Tax effects on extraordinary gain and losses 85,837 211,211 Net profit before extraordinary gain to losses 995,391,641 958,984,906 - Attributable to Shareholder of the company 664,757,766 625,639,289 - Minority interests 330,633,875 333,345,617 The basis of preparation of net profit before extraordinary gains and losses reconciliation According to the Q&A on Disclosure of Information by Public Companies No 1 – Extraordinary gains and losses, extraordinary gain and losses are the gain and losses resulted from the transactions/events which are not incurred by the operation of the entity, or, though incurred by the operation, the nature, amounts or the frequency of such transactions/events will lead to a misleading presentation of the normal performance and profitability of the operation of the entity. - 75 - Reconciliation from consolidated owners’ equity presented in accordance with Previous Accounting Standards and System to those presented in accordance with CAS Amount in annual Original amount in Items Difference Notes report of 2007 annual report of 2006 Owner’s equity at 31 December 2006 (presented in accordance with the Previous 2,246,672,103 2,246,672,103 - Accounting Standards and System) Equity investment difference - - - Including: Equity investment difference arising from business combination - - - involving enterprises under common control Credit balance of other equity investment difference accounted - - - for using equity method of accounting Investment property recorded under fair value - - - model Adjustment on depreciation of previous year - - - due to estimated fixed assets disposal plan Provision for termination benefits committed to - - - employee Share payment - - - Provision for restructuring costs - - - Goodwill from business combination - - - Including: goodwill arising from business combination involving enterprises - - - under common control Impairment of goodwill arising from business combination involving - - - enterprises not under common control Financial assets at fair value through profit or - - - loss and available-for-sale financial assets Financial liabilities at fair value through profit - - - or loss Addition in equity arising from split of financial - - - instruments Derivative financial instruments - - - Income tax expense 10,835,155 10,835,155 - Transferred from minority interests 808,996,475 808,996,475 - Specific retrospective adjustment for B/H share company Others 4,926,058 4,926,058 - Owner’s equity at 1 January 2007 (presented 3,071,429,791 3,071,429,791 - in accordance with CAS )