万科Ｂ(200002)2008年年度报告（英文版）

2008 Annual Report Important Notice: The Board, the Supervisory Committee, Directors, members of the Supervisory Committee and senior management of the Company warrant that in respect of the information contained in this Annual Report, there are no misrepresentations or misleading statements, or material omission, and individually and collectively accept full responsibility for the authenticity, accuracy and completeness of the information contained in this Annual Report. Chairman Wang Shi, Director Yu Liang, Director Sun Jianyi, Director Shirley L. Xiao, Independent Director David Li Ka Fai, Independent Director Judy Tsui Lam Sin Lai, Independent Director Qi Daqing and Independent Director Charles Li attended the board meeting in person. Deputy Chairman Song Lin, Director Wang Yin and Director Jiang Wei were not able to attend the board meeting in person due to their business engagements and had authorised Director Yu Liang to represent them and vote on behalf of them at the board meeting. Chairman Wang Shi, Director and President Yu Liang, and Executive Vice President and Supervisor of Finance Wang Wenjin declare that the financial report contained in this Annual Report is warranted to be true and complete. To Shareholders…………………………………… ……………….…………………………2 Corporate Information..……………………………………… ………………………………6 Accounts and Financial Highlights.……………………………………………………………7 Change in Share Capital and Shareholders……………………………………………….……7 Directors, Members of Supervisory Committee, Senior Management and Employees. .…….12 Corporate Governance Structure..…………………………………………….………………20 Summary of Shareholders’ Meetings……………………………………………………….…22 Directors’ Report………………………………………………………………………………23 Report of Supervisory Committee..…………………………………….…….………….……59 Significant Events………………………………………………………………………………61 Chronology of 2008.………………………………………….…….………………………….76 Financial Report..………………………………………..……..………………………………77. 1 I.To Shareholders Reviewing 2008 would not be an easy task as so many things have happened and things were in such a great contrast to 2007. In any case, 2008 could not be seen as a glorious page in the history of the PRC residential property industry or China Vanke. Even so, the year had brought forth many thought-provoking issues, which perhaps were the biggest gain for us in 2008. Earnings and room for growth There is a common perception when it comes to property industry: people would associate “property industry” with “high profitability”, regarding rising housing prices as a favourable factor to the property industry. China Vanke has always held a different view on this issue. As early as in 2005, the Company pointed out that: “it is in the interest of the property industry to maintain stable development rather than exponential increase in prices”. Yet, only until 2008, could the Company feel the real and deep impact. The PRC’s residential property industry, in principle, could not have been a high profit industry. It is an industry with low entry barriers or requirements of sophisticated technical know-how. Against the backdrop of complete marketisation of land transactions, certain first movers can no longer enjoy the sole ownership of the non-replaceable resources. With the gradual depletion of idle land resources, those first movers who possess the advantages in this area are rapidly waning in strength and will eventually be eliminated from the market. As such, a fair gain is the only thing that can be expected from such an industry. It therefore does not require much effort to predict what would happen when everyone in general perceives that the property industry, which has low entry requirements, is a high yield industry. The flooding of external capital and common perception in the industry caused a euphoric market sentiment in 2007, resulting in an abnormal phenomenon where land cost exceeded the price of housing units. Such situation had stopped in 2008. However, the land obtained at high costs in 2007 is unlikely to help the developers to make an average profit in the next few years, not to mention significant profits. It is true that 2007 saw successful economic performance; however it was like being built on sand, which would not last long. We should not ask whether the prime time of 2007 would return or not. The rise of the PRC and its influence on the global economy has not yet come to an end, and there is still room for the PRC property industry to mature. As such, the prosperity seen in 2007 may appear again; however, it should not return – it is not an aspiration; it is a warning signal. On the contrary, 2008 may not be a glorious year, but that year was a necessary period. It is an integral part of a complete cycle and a complete growth path of the PRC residential property industry. Only when 2008 is taken into account in the history of the PRC residential property industry, the basic structure of how the PRC residential property industry operates becomes a reality. So, what attractions does the PRC property industry retain when it has been stripped of the fairy tale of high profits? The actual value lies in the industry’s high growth potential instead of high profitability. Its real attraction lies in the future instead of the past. The PRC is a growing economic giant with the largest population. There could be more than one domestic industry competing to be the world’s leading industry. Among these industries, the property industry has the largest room for growth and a currently low concentration ratio. The following passage was published in the Company’s 2007 annual report. Pardon us for reiterating it here because it reflects our long-term vision instead of a fleeting emotion: 2 “China is experiencing a process of rapid modernisation and urbanisation. It is probably an opportunity only occurred once in the history of a nation. Amidst this historical moment, the development of the China residential property industry is bound to be extraordinary, given its close association with urbanisation. The sensational upsurge and the following adjustment in the market are likely to repeat. As a player in the industry, members of China Vanke will remain indifferent to such ups and downs. Despite the widely politicised turbulence, the market’s actual purchasing power is quietly growing. The residential market continues to develop into a mature industry. As an industry with little entry barrier, the resources and opportunities available to the market participants are becoming more equal. The time had passed for a corporation to enjoy profitability merely through the advantage of securing a resource. In the future, only those companies create values can survive. Only those enterprises that can have the ability to maximise resources utilisation, to create products with high price/performance ratio with the lowest consumption can stay in the front of the industry.” At least for China Vanke, we believe that free entry, adequate competition, fair gain, and enormous room for market growth are worth looking forward to, at least for China Vanke. Prediction and reaction In the fourth quarter of 2007, when excited market sentiment prevailed, China Vanke’s unique viewpoint caught the attention of the society and was given the name of “turning point theory”. The viewpoint had caused controversy within the industry and the Company was called into question. Following the overall industry adjustment in 2008, it became pointless to argue or raise any doubts. There was growing demand for China Vanke to make market predictions. The most frequently asked question is: “Where and when will the market reach its trough?” Unfortunately, China Vanke is unable to provide an answer to this question. In our opinion, it is impossible to predict when the market peak and trough will occur. It was a coincidence that the market peak and the controversy caused by the “turning point theory” occurred in the fourth quarter of 2007. China Vanke had made its warning about the excited market sentiment in its 2007 interim report, although it did not arouse any immediate attention from the market. In other words, China Vanke has never made any prediction on the precise timing of the emergence of the market peak in 2007. It is impossible to predict when the market peak and trough will occur because the market assumes individual-level decision-making. Each market participant has an attitude and judgment different from others and each determines his own actions, which may affect the market results in certain way. In an extreme case, the buyers and sellers determine the peak and trough respectively. However, it is impossible to predict on the extreme actions of an uncertain target. On the other hand, the property industry has always been and will be closely related with the macro economic environment. Thus, the predictability of a short-term macro economic trend, to a great extent, determines the predictability of the property industry. As the global economy is going through extraordinary times and the short-term upheavals on the PRC’s residential market may become extremely complicated, it is beyond a company’s ability to make predications. It appeared to be a pessimistic conclusion that enterprises could not precisely predict on short-term fluctuations. However, to an enterprise, ability to respond is more important than its ability to make predictions. An enterprise can and should remain familiar with the long-term development direction of the market and make timely judgment to market changes. From here, the enterprise can conduct analysis of all 3 possible short-term changes that may occur in the future and formulate responsive plans accordingly, and take prompt action when the changes become apparent. Penetrative vision and prudent action Opinions and expectations may be too high for China Vanke’s ability to make predications. This raised another question: Since China Vanke made an early warning on the overheated market in mid 2007, why did China Vanke still purchase certain land resources at high prices during the second half of 2007? Didn’t China Vanke suit its actions to its words? Was China Vanke having any problems with its execution? For many years, the property industry has been attracting much attention, and China Vanke has always been in the spotlight. This has enhanced the Company’s influential power and ability to rally. Particularly when China Vanke entered new markets, this has facilitated rapid development of the Company’s business. On the other hand, every action taken by China Vanke, including disclosing information, also came under close scrutiny. China Vanke’s acquisition of land in the second half of 2007 had attracted lots of media attention. However, not many people knew how many land lots the Company had given up to acquire. And people somewhat overlooked the fact that, as China Vanke’s sales amount in 2007 had more than doubled, the amount of land resources purchased by the Company was less than that in 2006. In 2007, increase in land price was significantly greater than that in the price of housing. The land price reached its historical high in the second half of 2007. In a situation like that, unless enterprises stopped purchasing land, they would be buying expensive land. However, the decision to stop purchasing land was not easy. Land is different from other factors of production. It cannot be purchased from the market anytime you want. If an enterprise fails to purchase sufficient land in advance, it will face operation continuity challenges, not to mention development. China Vanke is one of the world’s large-scale residential property developers who have their land reserves sufficient only to meet development needs in the nearest term. From 2004 onwards, China Vanke’s year-end land reserves have been lower than the amount of land required for commencing construction in the following two years. To China Vanke, it would be an extreme decision to halt land purchases. Making extreme decisions is a kind of daring but risky management approach. An act of extreme may bring glorious success, but on the other hand, it may lead to irreversible mistakes. As reflected by the Company’s character, steady operation has always been pursued by China Vanke.We would rather give up the opportunities for great achievements than making irreversible mistakes. As early as 2005, when the market was still marked by doubt, China Vanke had already decided to set the upcoming three years as its rapid development stage. Although China Vanke’s decision stood, it had never tried to go beyond its capacity and resources to pursue excessive expansion. Prudent operation approach comes from deep-rooted reverence. From our point of view, there are many uncertainties in the world, but our cognitive abilities are limited. There are many but fleeting opportunities in the market, and enterprises must make timely decisions. However, at the same time, we have to realise our own reasoning limitations. We should have certain control of our self-confidence, especially when our perspective varies significantly with the market’s. Acute observation and clear perception are the two abilities we hope we can enhance continuously. However, if we let go of our prudent behaviour and self-control, the forgoing abilities may bring to the enterprise not only success and glorious achievements. 4 Principles and starting point The industry adjustment happened in 2008 was not something to be afraid of; it was inevitable and necessary. What it brought along could be opportunities. But what one should take as a warning signal is the transient excessive prosperity that came before it. To certain extent, we should be grateful for the arrival of the current market adjustment. The first opportunity brought forth by the adjustment is in fact the opportunity for us to calm down, reflect and improve ourselves. When the industry is in a bull phase, it is easy for an enterprise to assume a laid-back attitude in pursuing professionalism and in its will to work hard. When it seems that any housing units can be sold like hot cakes, and when rise in housing prices becomes almost the synonym of “easy money”, do we still persist in conducting research on customer needs, continuous improvement of products and service quality and price/performance ratio? Do we still try to do a careful budget, make the most reasonable allocation of costs, exercise reasonable control over expenses, in order to maximise shareholders’ interests? Are we still trying our best to analyse the market and find the most effective sales channels and methods? -- The motivation for us to make deep reflections is exactly the most precious gift brought to us by the events in 2008. No matter how difficult it was in 2008, and no matter how uncertain 2009 would be, there has been no radical change in the general trend of the industry development, and the basic logic of a commercial society will ever remain unchanged. This basic logic is the last reason for the existence of an enterprise, i.e. to create value for investors; the ultimate goal of business activity is to maximise utility of the society using minimal resources. In 2009 and thereafter, we need to go back to the starting point of business logic, pay greater respect for market rules and pay more attention to customer needs. We need to uphold values in which we believe – simple, transparent, regulated and responsible. Whether it is to our staff or people outside the Company, we need to live up to the purpose on which the Company was founded – respect for people, and we need to pursue a deeper experience of a “healthy and rich” life. Although the market is still undergoing adjustments, China Vanke will not slow down in the pace of exploring the subject of housing prefabrication. This is not only the inevitable direction of the development of the industry, but is also one of the important sources of core competitiveness of China Vanke in the future. Only until we have accomplished all of the above, we can then keep creating more value for our shareholders. Anxious and thankful Everything that happened in 2008 was basically expected, and therefore there is no need to be panic or feel lost. But we cannot say that we have nothing to regret when we look back on 2008. What we regret: Although we basically made a right judgement on the general trend of the industry, we could not completely get rid of the prevailing market attitude when the market was in a bull phase. In an environment that was too comfortable, various aspects of our operation demonstrated different levels of weakness, and our professional performance showed signs of deterioration. This has become one of the biggest challenges for China Vanke in 2009. In 2008, China Vanke had been in business for 24 years, during which the Company had not only grown stronger, but also remained young at heart. Like a young enterprise, we find that we are yet to reach maturity 5 after we have entered a new development stage; and like a young enterprise, we have the courage to accept criticism and failure. China Vanke’s motto for 2009 contains only two words: “Cipher” and “One”. This motto can be interpreted as “With the birth of a new life for all things, a better tomorrow is coming”. “Cipher” can mean the origin or the starting point. China Vanke will put its past success behind, and rectify its weakness. With an enterprising spirit, the Company will treat each day as a new starting point. The meaning of “One” can be extended to include hope and action. Thousand miles begin with the first step. Starting from now on, the Company will be down-to-earth and, together with its shareholders, make step-by-step progress to meet a better tomorrow. II. Corporate Information 1. Company name (Chinese): 万科企业股份有限公司 Company name (English): China Vanke Co., Ltd. (“Vanke”) 2. Legal representative: Wang Shi 3. Secretary of the Company’s Board of Directors: Shirley L. Xiao E-mail address: IR@vanke.com Securities affairs authorised representative: Liang Jie E-mail address: IR@vanke.com 4. Contact address: Vanke Architecture Research Centre, No 63 Meilin Road, Futian District, Shenzhen, the People’s Republic of China 5. Telephone number: 0755-25606666 Fax number: 0755-25531696 6. Registered company address: Vanke East Coast Buildings C02, Da Mei Sha, Yantian District, Shenzhen, the People’s Republic of China Postal code: 518083 Office address: Vanke Architecture Research Centre, No 63 Meilin Road, Futian District, Shenzhen, the People’s Republic of China Postal code: 518049 7. Corporate website: www.vanke.com E-mail address: IR@vanke.com 8. Media for disclosure of information: “China Securities Journal”, “Securities Times”, “Shanghai Securities News” and an English medium in Hong Kong Website for posting annual report: www.cninfo.com.cn 9. Place for annual report collection: The Office of the Company’s Board of Directors 10. Stock exchange on which the Company’s shares are listed: Shenzhen Stock Exchange 11. Company’s share abbreviation and stock codes on the stock exchange: Vanke A, 000002 Vanke B, 200002 12. First registration date of the Company: 30 May 1984; location: Shenzhen Date of change in registration: 19 September 2008; location: Shenzhen 13. Corporate legal person business registration no.: 440301102900139 14. Taxation registration code: Local taxation registration code: 440304192181490 State taxation registration code: 440301192181490 15. Organisation code: 19218149-0 16. The name and address of the certified public accountants appointed by the Company: KPMG Huazhen Certified Public Accountants 8/F, Office Tower E2, Oriental Plaza, 1 East Chang An Avenue, Beijing 6 III. Accounts and Financial Highlights 1．Three-year financial information summary (Unit: RMB) 2008 2007 2006(restated) Revenue 38,619,214,077 33,486,560,759 16,904,430,653 Operating profit 8,844,809,759 9,848,471,908 4,141,671,432 Share of losses less profits of associates and 209,735,863 128,643,367 60,098,192 jointly controlled entities Profit before income tax 8,420,227,338 9,628,685,644 4,062,295,632 Taxation -3,780,358,185 -4,311,184,826 -1,639,298,581 Profit for the year 4,639,869,153 5,317,500,818 2,422,997,051 Profit attributed to minority -606,699,125 -473,265,324 -125,113,285 Profit attributed to Equity shareholders of the 4,033,170,028 4,844,235,494 2,297,883,766 Company Basic earnings per share 0.37 0.45 0.24 Diluted earnings per share 0.37 0.45 0.24 Dividend 0.05 0.10 0.15 Note:During the period under review, the Company implemented the proposal on the transfer of capital surplus reserve to share capital for the year 2007, pursuant to which six shares were transferred to shareholders for every 10 shares held. As a result the earnings per share for last year were diluted accordingly. 2. Impact of IFRS Adjustments on Net Profit (Unit: RMB) Items Net profit for 2008 As determined pursuant to PRC accounting standards 4,033,170,028 As restated in conformity with IFRS 4,033,170,028 Note:There was no difference between the net profit attributable to equity shareholders of the Company prepared in accordance with IFRS and that prepared according to PRC Accounting Standards for the period from January to December 2008. IV. Change in Share Capital and Shareholders 1. Change in Share Capital (1) Change in the shares of the Company (Unit: share, as at 31 December 2008) Balance at the Increase / decrease（+, -） Balance at the beginning of the year end of the year Class of Share Transfer of Others Percentage Percentage of Quantity capital surplus Quantity of shareholding （note 2,3） reserve (note 1) shareholding I. Restricted Shares 1. State-owned and State-owned legal person 165,000,000 2.40% 99,000,000 0 264,000,000 2.40% shares 2. Shares held by domestic legal persons 3. Shares held by domestic 1,733,278 0.03% 898,663 23,405,157 26,037,098 0.24% natural persons 4. Shares held by foreign investors Total number of 166,733,278 2.43% 99,898,663 23,405,157 290,037,098 2.64% restricted shares II. Non-restricted Shares 1. RMB-denominated 5,883,425,941 85.61% 3,530,196,868 -23,405,157 9,390,217,652 85.40% ordinary shares (A shares) 2. Domestic listed foreign 821,847,168 11.96% 493,108,300 0 1,314,955,468 11.96% shares (B shares) 7 Total number of 6,705,273,109 97.57% 4,023,305,168 -23,405,157 10,705,173,120 97.36% non-restricted shares III. Total Number of 6,872,006,387 100.00% 4,123,203,831 0 10,995,210,218 100.00% Shares Notes: Details on the change in the Company’s share capital are as follows: (1) During the year under review, the Company implemented the proposal on the transfer of capital surplus reserve to share capital for the year 2007, pursuant to which 6 shares were transferred to shareholders for every 10 shares held; the total number of shares of the Company thus increased accordingly; (2) During the year under review, the Shenzhen office of China Securities Depository & Clearing Corporation Limited, according to regulations, lifted the selling restrictions on certain restricted shares held by senior management, leading to a decrease of 235,506 shares in the number of restricted tradable shares held by the Company’s domestic natural persons and a corresponding increase in the Company’s non-restricted tradable shares; (3) During the year under review, the procedure for transferring incentive shares into personal share accounts of the beneficiaries under the 2006 Restricted Stock Incentive Plan was completed and a total of 23,640,663 shares were transferred to members of senior management. The number of restricted tradable shares held by the Company’s domestic natural persons increased and the number of non-restricted tradable shares decreased accordingly. The Change in Restricted Shares Unit: share Name of Number of Number of Number of Number of Reasons for selling Date of release shareholder restricted shares lifted restricted restricted restricted shares restriction of lock-up held at the shares during shares held at the end of period beginning of the the year increased the year year during the year Private placing of CRC 165,000,000 0 99,000,000 264,000,000 2009-12-27 restricted shares Wang Shi 980,882 235,506 5,674,291 6,419,667 Director － Yu Liang 207,837 0 3,787,562 3,995,399 Director, senior － management Ding Fuyuan 220,073 0 1,680,962 1,901,035 Member of Supervisory － Committee Sun Jianyi 324,486 0 194,691 519,177 Director － Liu Aiming 0 0 1,650,978 1,650,978 senior management － Ding Changfeng 0 0 1,487,660 1,487,660 senior management － Xie Dong 0 0 1,487,660 1,487,660 senior management － Zhang Jiwen 0 0 1,548,950 1,548,950 senior management － Mo Jun 0 0 1,548,950 1,548,950 senior management － Xu Hongge 0 0 1,650,978 1,650,978 senior management － Director, senior Shirley L. Xiao 0 0 1,446,849 1,446,849 － management Wang Wenjin 0 0 1,343,591 1,343,591 senior management － Zhang Li 0 0 1,036,204 1,036,204 Member of Supervisory － Committee Total 166,733,278 235,506 123,539,326 290,037,098 － － (2) Issue and listing of shares A. Issue of shares and derivative securities in the past three years Issue of corporate bonds Approved by Zhengjian Xu Ke [2008] No. 1056 documents of China Securities Regulatory Commission (“CSRC”), the Company issued an announcement on 2 September 2008 that it would make a public issue of corporate bonds with a par value not exceeding RMB5.9 billion. The corporate bonds in this issue were classified into secured bonds and unsecured bonds. Both of them bore a fixed interest rate with a 5-year maturity. The issuer of the unsecured bonds had the right to raise the coupon rate at the end of the third year of the maturity period, while investors had the right to resell their bonds. Pursuant to the feedback on the price, the coupon rate of the Company’s secured bonds was 5.50%, and that of the unsecured bonds was 7.00%. The issue was completed on 9 September 2008 and the actual size of the issue of secured bonds was RMB3 billion, while the actual size of the issue of unsecured bonds was RMB2.9 billion. The Company’s corporate bonds started to trade on the Shenzhen Stock Exchange on 18 September 2008. The stock codes of 8 the Company’s secured bonds and unsecured bonds are 112005 and 112006 respectively and their abbreviations are 08 VankeG1 and 08 VankeG2 respectively. During the year under review, there was no change in the number of issued corporate bonds. Public issue of A shares Approved by the CSRC Zhengjian Fa Xing Zi [2007] No. 240 documents, on 22 August 2007, the Company issued a prospectus for its public issue of new A shares and began to prepare for the public issue of the new A shares. The existing shareholders of A shares had pre-emptive right to purchase A shares of the new issue. The remaining balance of the new issue would be offered at a fixed price through on-line and off-line subscription. The issue price was RMB31.53 per share. The number of new A shares of this issue was 317,158,261 shares, raising a total amount of proceeds of RMB9,999,999,969.33. The net proceeds, after deducting issue expenses, were RMB9,936,601,701.22. On 5 September 2007, the newly issued A shares were listed on the Shenzhen Stock Exchange. Private placing of A shares Pursuant to the approval of the China Securities Regulatory Commission, the Company conducted a private placing of 400,000,000 A shares with 10 specific targets, including CRC, at an issued price of RMB10.5 per share on 13 December 2006, thereby raising total proceeds of RMB4.2 billion. The net proceeds, after the deduction of issue expenses, amounted to RMB4,196.7 million. On 27 December 2006, the A shares issued for the private placing were listed on the Shenzhen Stock Exchange. In accordance with the relevant requirements of the “Administrative Rules for Securities Offerings of Listed Companies”, the A shares issued for the private placing are subject to a lock-up period. The A shares placed with CRC are subjected to a lock-up period from 27 December 2006 to 26 December 2009; the shares placed with other investors were subject to a lock-up period from 27 December 2006 to 26 December 2007. B. During the year under review, owing to the transfer of capital surplus reserve to share capital, there had been changes in the total number of the Company’s shares and its share capital structure. Please refer to the notes to the table showing the “Change in the shares of the Company”. C. As at the end of the year under review, the Company did not have any internal employee shares. 2. Information on Shareholders (as at 31 December 2008) (1) Information on shareholders Unit: share Total number of shareholders 1,089,320（A shares: 1,056,521; B shares: 32,799） Shareholdings of the top 10 shareholders Classification Percentage Total Number of Number of of of number of restricted pledged or Name of shareholder shareholder shareholding shares held shares held lock-up shares s State-owned CRC 14.73% 1,619,094,766 264,000,000 0 shareholder Liu Yuansheng Other 1.22% 133,791,208 0 0 China Life Insurance Company Limited– Dividend Distribution–Individual Dividend- Other 0.92% 101,392,428 0 0 005L-FH002 Shen Foreign Toyo Securities Asia Limited-A/C client 0.91% 100,589,364 0 0 shareholder Bosera Third Industry Growth Stock Securities Investment Fund Other 0.75% 82,090,335 0 0 (博时第三产业成长股票证券投资基金) Rongtong Shenzhen Stock Exchange 100 Other 0.74% 81,858,683 0 0 Index Securities Investment Fund International Capital Corporation－HSBC－ Other 0.71% 77,698,142 0 0 9 JP Morgan Chase Bank, National Association E Fund Value Growth Mixed Securities Investment Fund Other 0.69% 75,885,238 0 0 (易方达价值成长混合型证券投资基金) Bosera Value Growth #2 Securities Investment Fund Other 0.67% 74,000,000 0 0 (博时价值增长贰号证券投资基金) China Life Insurance (Group) Company- Other 0.67% 73,974,762 0 0 Traditional-General Insurance Products Shareholdings of the top 10 shareholders of non-restricted shares Name of shareholder Number of non-restricted Class of shares shares held Ordinary RMB-denominated shares CRC 1,355,094,766 (A shares) Ordinary RMB-denominated shares Liu Yuansheng 133,791,208 (A shares) China Life Insurance Company Limited– Ordinary RMB-denominated shares Dividend Distribution–Individual Dividend- 101,392,428 (A shares) 005L-FH002 Shen Domestic listed foreign shares Toyo Securities Asia Limited-A/C client 100,589,364 (B shares) Bosera Third Industry Growth Stock Ordinary RMB-denominated shares 82,090,335 Securities Investment Fund (A shares) Rongtong Shenzhen Stock Exchange 100 Ordinary RMB-denominated shares 81,858,683 Index Securities Investment Fund (A shares) International Capital Corporation－ HSBC－ Ordinary RMB-denominated shares 77,698,142 JP Morgan Chase Bank, National Association (A shares) E Fund Value Growth Mixed Securities Ordinary RMB-denominated shares 75,885,238 Investment Fund (A shares)） Bosera Value Growth #2 Securities Ordinary RMB-denominated shares 74,000,000 Investment Fund (A shares) China Life Insurance (Group) Company- Ordinary RMB-denominated shares 73,974,762 Traditional-General Insurance Products (A shares) Remarks on the connected relationship or China Life Insurance (Group) Company-Traditional-General Insurance Products is action in concert of the aforementioned managed by China Life Insurance (Group) Company, controlling shareholder of China shareholders Life Insurance Company Limited which manages China Life Insurance Company Limited–Dividend Distribution–Individual Dividend-005L-FH002 Shen. Bosera Third Industry Growth Stock Securities Investment Fund and Bosera Value Growth #2 Securities Investment Fund are funds managed by Bosera Asset Management. Apart from the above-mentioned ralationships, it is not known as to whether there are other connections or be the action-in-concert people specified in Administration of the Takeover of Listed Companies Procedures among the above-mentioned shareholders. Note: As at the end of the year under review, China Vanke A shares held by the 2007 incentive fund under Phase One of the Restricted Stock Incentive Plan and the advanced appropriation for the 2008 incentive fund amounted to 46,341,761 shares, and 60,925,820 shares respectively. The total number of China Vanke A shares held by the two independent incentive funds was 107,267,581, representing 0.98 per cent of the Company’s total number of shares at the end of the year under review and exceeding the percentage of shareholding of the third largest shareholder of the Company at the end of the year under review. Pursuant to the requirements of Phase One of the Incentive Plan of China Vanke, “the stock incentive plan of each year is an individual trust plan and the shares purchased by the incentive fund appropriated according to the plan of a given year are maintained by an individual share account.” As such, the incentive plans of different years are independent from each other. There will also be certain changes in the target beneficiaries in different years, and the aforementioned incentive shares do not carry voting rights before being transferred to the personal accounts of the beneficiaries. In addition, the implementation of the plan is subject to the operating results and share prices of the year in which the incentive plan takes place. (2) Number of shares held by the top 10 shareholders of restricted shares and the conditions of selling restrictions Number of new Number of Date on which listing Conditions of Serial Name of shareholder of shares that may restricted shares and trading may selling No. restricted shares be listed and held commence restrictions traded 1 CRC 264,000,000 2009-12-27 264,000,000 Note 10 Note: The lock-up period of the shares subscribed by CRC during the private placing of the Company’s A shares in 2006 is from 27 December 2006 to 26 December 2009. (3) Controlling shareholders and beneficial controllers There were neither controlling shareholders nor beneficial controllers in the Company, and this situation remained the same during the year under review. (4) The single largest shareholder As at the end of the year under review, CRC was the single largest shareholder of the Company, holding an aggregate of 1,619,094,766 A shares of the Company, which represented 14.73 per cent of the total number of the Company’s shares. CRC was promoted and established by China Resources National Corporation (“CRNC”) in June 2003, with Mr Song Lin as its legal representative. CRC’s major assets include 100 per cent equity interests in China Resources (Holdings) Co., and other assets in the PRC. Its core businesses include manufacturing and distribution of consumer goods, property and related industries, infrastructure facilities and public utilities. The registered address of CRC is China Resources Building, No. 8 Jianguomen Wai North Avenue, Dongcheng District of Beijing. CRC has a registered capital of approximately RMB16,467 million. CRNC holds 16,464,463,526 state-owned shares in CRC, representing 99.984212 per cent of CRC’s total share capital. The other four promoters, namely COFCO, China Minmetals Corporation, Sinochem Corporation and China Huaneng Group, each owns 650,000 state-owned legal person shares in CRC, representing 0.003947 per cent of CRC’s total share capital respectively. CRNC has a registered capital of approximately RMB9,662 million. Its major asset is the equity interests in CRC. It is under the direct supervision of the State-owned Assets Supervision and Administration Commission of the State Council. Mr Song Lin is the legal representative of CRNC. The following chart shows the equity relationship between the single largest shareholder and the Company: State-owned Assets Supervision and Administration Commission of the State Council 100% CRNC 99.984212% CRC 14.73% The Company 11 3．Bond holdings of the Company’s bondholders (as at 31 December 2008) (1) Name of the top 10 bondholders of 08 Vanke G1 bonds and their bond holdings No. of bonds No. Bondholder Percentage held New China Life Insurance Company–Dividend Distribution– 5,982,661 1 Individual Dividend-018L-FH002 Shen 19.94% China Pacific Life Insurance Company Limited–Traditional– 2,741,509 2 General Insurance Product 9.14% China Ping An Life Insurance Company Limited – Traditional – 2,218,727 3 General Insurance Products 7.40% China Life Property and Casualty Insurance Company Limited– 1,820,000 4 Traditional–General Insurance Products 6.07% 5 China Life Insurance Company Limited 1,770,000 5.90% 6 China Life Pension Company Limited–Internal Resources 1,000,000 3.33% Ping An Property and Casualty Insurance Company of China– 999,995 7 Investment-oriented Insurance Products 3.33% China Southern Power Grid Enterprises Pension Scheme– 642,000 8 Industrial and Commercial Bank of China 2.14% 9 China–Africa Development Fund 589,474 1.96% Shanghai’s Corporate Annuities Transition Plan by Changjiang 585,871 10 Pension Insurance Company Limited–Bank of Communications 1.95% Note: China Ping An Life Insurance Company Limited, which manages “China Ping An Life Insurance Company Limited– Traditional–General Insurance Products”, and Ping An Property and Casualty Insurance Company of China, which manages “Ping An Property and Casualty Insurance Company of China–Investment-oriented Insurance Products”, are subsidiaries of Ping An Insurance (Group) Company Of China, Limited. China Life Pension Company Limited, which manages “China Life Pension Company Limited–Internal Resources”, and China Life Property and Casualty Insurance Company Limited, which manages “China Life Property and Casualty Insurance Company Limited–Traditional–General Insurance Products”, are subsidiaries of China Life Insurance Company Limited. Apart from the above-mentioned ralationships, it is not known as to whether there are other connections among the above-mentioned bondholders. （2）Name of the top 10 bondholders of 08 Vanke G2 bonds and their bondholdings No. Bondholder No. of bonds held Percentage 1 Citic Securities Company Limited 3,356,319 11.57% 2 Guangfa Jufeng Stock Securities Investment Fund 2,083,451 7.18% 3 ICBC/Credit Suisse Tianli Bond Securities Investment Fund 1,596,989 5.51% 4 Fullgoal Tianfeng Surging Income Bond Fund 1,463,997 5.05% 5 Haitong Securities Company Limited 1,062,525 3.66% ChinaAMC Bonus Mixed Open-end Securities Investment 999,198 6 3.45% Fund 7 Jianxin Stable Profit Increase Bond Securities Investment Fund 944,675 3.26% Zhongrong International Trust Company Limited–No. 2 Double 855,537 8 2.95% Selection 9 Bosera Stable Value Bond Investment Fund 800,000 2.76% 10 ChinaAMC Renaissance Stock Securities Investment Fund 742,401 2.56% Note: ChinaAMC Bonus Mixed Open-end Securities Investment Fund and ChinaAMC Renaissance Stock Securities Investment Fund are managed by China Asset Management Company Limited. Citic Securities Company Limited is the controlling shareholder of China Asset Management Company Limited. Apart from the above-mentioned ralationships, it is not known as to whether there are other connections among the above-mentioned bondholders. V. Directors, Members of Supervisory Committee, Senior Management and Employees 1. Directors, Supervisors and Senior Management (1) Basic information Brief introduction to directors 12 Wang Shi, male, born in 1951. He joined the military force in 1968. Wang Shi changed his career in 1973 and worked in the Water and Electrical supply department of Zhengzhou Railway. Wang Shi graduated from Lanzhou Railway College in 1978 majoring in water supply studies. After graduation, he had worked for Guangzhou Railway Bureau, Guangzhou Foreign Trade and Economic Cooperation Committee and Shenzhen Special Region Development Company. In 1984, he established “Shenzhen Exhibition Centre of Modern Science and Education Equipment”, the predecessor of China Vanke, and acted as General Manager. The company was reorganised into China Vanke Co. Ltd., a shareholding company, in 1988, at which time Mr Wang became Chairman and General Manager. Mr Wang no longer acted as the General Manager with effect from 1999. At present, he is the Chairman of the Company. Song Lin, male, born in 1963. He graduated from Tongji University with a bachelor of science degree in engineering mechanics in 1985. Mr Song joined CRH in 1986 and became a Director of CRHC in 1998. In 2000, he became Executive Director and Deputy General Manager of CRHC, and Managing Director of China Resources Enterprise Limited, as well as the Chairman of China Resources Logic Limited and China Resources Power Holdings Company Limited. He became a Director of CRC in 2003, and the Managing Director of CRC in 2005. He has been the Chairman of China Resources Land Limited (“CRL”) since 2006. At present, Mr Song is the Chairman of CRHC, Managing Director of CRC, the Chairman of China Resources Enterprise Limited, China Resources Power Holdings Company Limited, China Resources Land Limited and China Resources Microelectronics Limited, and an Independent Non-executive Director of Geely Automobile Holdings Limited. He has been the Director of the Company since 2001. At present, he is the Deputy Chairman of the Company. Yu Liang, male, born in 1965. He graduated from the Faculty of International Economics Studies of Peking University with a bachelor’s degree in 1988. Mr Yu obtained a master’s degree in economics from Peking University in 1997. He had previously worked for Shenzhen Waimao Group. He joined the Company in 1990. He became the General Manager of Shenzhen Vanke Financial Consultancy Company Limited in 1993 and the Deputy General Manager of the Company in 1996, and the Executive Deputy General Manager and Supervisor of Finance of the Company in 1999. He has been the General Manager of the Company since 2001 and a Director of the Company since 1994. At present, Mr Yu is the President of the Company. Sun Jianyi, male, born in 1953. He graduated from Zhongnan University of Finance and Economics, majoring in finance studies. He is a senior economist. He worked at Wuhan branch, the People’s Bank of China in 1971. He became Deputy General Manager of Wuhan Branch, the People's Insurance Company of China, Limited and the committee member of the Communist Party Committee in 1985. He was appointed the General Manager of Management Department of Ping An Insurance Company of China in 1990, Assistant to General Manager in 1991, Deputy General Manager in 1992, the Executive Deputy General Manager in 1994 and an Executive Director of the same company in 1995. He has been an Executive Director and Executive Deputy General Manager of Ping An Insurance Company of China, Limited since 1997. In 2003, he became the Executive Director, Executive Deputy General Manager and Deputy Chief Executive Officer of Ping An Insurance (Group) Company of China, Limited. At Present, Mr. Sun is the Deputy Chairman, and Deputy Chief Executive Officer of Ping An Insurance (Group) Company of China, and Chairman of Ping An Bank Limited.. He also acted as a Director of Ping An Life Insurance Company of China, Limited, Ping An Property & Casualty Insurance Company of China, Limited, China Ping An Trust & Investment Co., Limited and Ping An Annuity Insurance Company of China, Limited, and the Chairman of Ping An Bank Limited. He has been a Director of the Company since 1995. He became an Executive Director in 1997 and Deputy Chairman of the Company in 1998. He was an Independent Director of the Company from 2001 to 2008. He has become the convener of the remuneration and nomination committee of the Board of the Company, and a member of the audit committee since 2005. He has become a Director and a member of the remuneration and nomination committee of the Company since 2008. 13 Wang Yin, male, born in 1956. He graduated from Shandong University with a bachelor’s degree in economics. He also obtained a master’s degree in Business Administration from the University of San Francisco. Mr Wang had worked in the Foreign Economic and Trade Cooperation Department. He became the Deputy Officer of the CRNC in 1984, Deputy General Manager of the Human Resources Department of CRHC in 1988, and the General Manager of Max Share Limited, a subsidiary of CRHC, in 1995. Mr Wang has been the Director and Assistant General Manager of CRHC since 2000. He has become Managing Director of CRL since 2001. He is a Director and Deputy General Manager of CRHC. He has been a Director of the Company since 2002. Shirley L. Xiao, female, born in 1964. She graduated from Wuhan University, majoring in English Literature in 1984. She obtained a master’s degree in Business Administration from China Europe International Business School in 2000. She had worked in Central South University of Technology, China Technology Data Import & Export Co. and Mitsubishi Corporation Shenzhen Office. She joined China Vanke in 1994 as the Deputy Director of the General Manager’s Office. She became the Director of the General Manager’s Office in 1996 and the Director of the Office of the Company’s Board in 2004. She has also been the Secretary to the Board of Directors since 1995. She has been a Director of the Company since 2004, and a member of the investment and decision-making committee of the Board of the Company since 2005. From 2007, she has been an Executive Vice President of China Vanke. Jiang Wei, male, born in 1963. He graduated from Foreign Economy and Trade University and obtained a master’s degree in international business and finance. He joined China Resources National Corporation in 1988 and CRHC in 1990. He became the General Manager of the Finance Department of CRHC in 1999 and a Director of CRHC in 2000. Mr Jiang became a Director and Financial Controller of CRHC in 2002, the Financial Controller of CRC in 2003 and a Director of CRC in 2005. At present, Mr Jiang is a Director and the Financial Controller of CRHC, a Director and Financial Controller of CRC, a Director of China Resources Enterprise, Limited, China Resources Power Holdings Company Limited, CRL, and a Non- executive Director of China Resources Logic Limited and China Asset (Holdings) Limited, and an Independent Director of Greentown China Holdings Limited. He became a member of the Supervisory Committee of the Company in 2001 and has been a director of the Company since 2005. He has been a member of the audit committee and a member of the investment and decision-making committee of the Board of the Company since July 2005. Brief introduction to independent directors David Li Ka Fai, male, born in 1955. He graduated from London City University in the UK in 1978. He is a FCPA of Hong Kong Institute of Certified Public Accountants and a member of the Institute of Chartered Accountants in England & Wales, a fellow member of the Association of Chartered Certified Accountants. At present, he is the Deputy Managing Partner of Li, Tang, Chen & Co. Certified Public Accountants and the Institute of Chartered Secretaries and Administrators respectively. an Independent Non-executive Director and the chairman of the audit committee of China-Hongkong Photo Products Holdings Ltd., an Independent Non-executive Director and Chairman of the audit committee of Cosmopolitan International Holdings Ltd., an Independent Non-executive Director and a member of the audit committee of China Merchant Holdings (International), and an Independent Non-executive Director and a member of the audit committee of CATIC International Holdings Limited. He was an Independent Non-executive Director and the chairman of the audit committee of Wanji Pharmaceutical Holdings Ltd. (currently known as Nubrands Group Holdings Limited) from 2002 to 2005. He has been an Independent Director of the Company, and the convener of the audit committee of the Board of the Company since 2005. 14 Judy Tsui Lam Sin Lai, female, born in 1955. She is the Associate Vice President, Dean of the Faculty of Business, Director of the Graduate School of Business and Chair Professor of Accounting at The Hong Kong Polytechnic University. Ms Tsui also holds positions as Honorary Professor and Visiting Professor at several top universities in Mainland China. She is the first professor in Accounting that was awarded the Cheung Kong Chair Professor by China’s Ministry of Education. She has been appointed as a Visiting Professor of the Research Centre for Social and Organizational Behaviour of the Chinese Academy of Sciences, and a Visiting Scholar of the Sloan School of Management of the Massachusetts Institute of Technology (MIT) in the USA. Ms Tsui was appointed by the Chief Executive of the Hong Kong SAR Government to serve as a member of the University Grants Committee and the statutory Financial Reporting Council. She is a Fellow of both the Hong Kong Institute of Certified Public Accountants and Hong Kong Institute of Directors, and an Honorary Fellow of CPA Australia. Ms Tsui is the first non-US citizen and the first Hong Kong scholar appointed as the Vice President-International of the American Accounting Association. She has been an Independent Director of the Company since 2005. Qi Daqing, male, born in 1964. Mr Qi graduated from College of Business, Michigan State University in the USA and obtained a PhD in accountancy. Mr Qi obtained a master’s degree in management from University of Hawaii in the USA and a dual bachelor’s degree in biophysics and international journalism from Fudan University. He had worked with The Chinese University of Hong Kong and Eli Broad Graduate School of Management of Michigan State University in the USA, Center for East-west studies in the USA and special correspondent foreign affairs department in Xinhua News Agency. He is currently a professor and Vice President of Cheung Kong Graduate School of Business, member of American Accounting Association, Independent Director of Sohu.com Inc. and Focus Media Inc. which are listed on the NASDAQ, and Independent Director of Honghua Group Ltd and CTV Golden Bridge International Media Co, Ltd. which are listed in HK.. He has become an Independent Director of the Company and convener of the remuneration and nomination committee since 2008. Charles Li, male, born in 1961. He graduated from the English Department of Xiamen University in 1984 with a bachelor of arts degree. Mr Li obtained a master’s degree in journalism from the University of Alabama and a SJD from Columbia University School of Law. He had worked as a lawyer in Davis Polk & Wardwell, a well-known American law firm, and the New York Headquarters of Brown & Wood. He joined Merrill Lynch Securities in 1994, and has become the Managing Director and President of Merrill Lynch Securities (China) since 1999. Mr Li has become Chairman and Chief Executive Officer of JP Morgan (China) since 2003. At present, Mr. Li is also an Independent Director of Shanghai Pudong Development Bank, and the routine Executive Director of the China Entrepreneurs Forum. He has become an Independent Director of the Company and convener of the investment and decision-making committee in 2008. Brief introduction to members of the Supervisory Committee Ding Fuyuan, male, born in 1950. He holds a tertiary qualification. He had worked in Guangdong Provincial Tourism Department, South China Sea Oil Joint Service Corporation, South China Petroleum Shenzhen Development Service Corporation and Nanhai Huaxin Group. He joined China Vanke in 1990 and became the Deputy Director of the General Manager’s Office in February 1991. In October 1991, he became the Manager of the Human Resources Department of the Company. He has been the Secretary of the Communist Party Committee of the Company since 1995. He became a member of the first Supervisory Committee of the Company in 1993 and has been the Chairman of the Supervisory Committee of the Company since 1995. Zhang Li, male, born in 1959. He graduated from Jiangxi University majoring in political economics in 1985. He had worked in Jiangxi No. 2 Chemical Fertilizer Factory, Jiangxi University and Jiangxi Labour Bureau. He joined the Company in November 1992. He became the General Manager of Shanghai Vanke Property Management Company Limited in 1995, Deputy General Manager of Shanghai Vanke Real Estate Company Limited in 1996, Manager of the Company’s Corporate Planning Department in November 1998, 15 Chairman and General Manager of Shenzhen Vanke Gift Manufacturing Co., Ltd in 1999. He resigned from the Company in 2000 and became the General Manager of Yuanda Real Estate Co., Ltd. In 2001, he joined the Company again as the General Manager of Beijing Vanke. He became the Director of the Property Management Department of the Company since 2002. He has become a member of the Supervisory Committee of the Company on behalf of the Staff Committee since 2004. Fang Ming, male, born in 1958, holds a bachelor’s degree in economics from Shandong University, an LLM degree from Nankai University and a degree of Doctor of social sciences from the Chinese Academy of Social Sciences. He had worked as a Deputy Researcher at the Chinese Academy of Social Sciences. Mr Fang joined CRHC in 1993. He had been the Senior Manager of the Research Department of CRHC, the General Manager of the Capital Operation Department of CRNC, the Assistant General Manager and the Deputy General Manager of the Corporate Development Department of CRHC. He is currently the Director and Vice President of China WorldBest Group Co. Limited, Director of Sunjiu Medical & Pharmaceutical Co. Limited and the Vice President of China Resources Medications Group Limited. Since December 2005, he has been a member of the Supervisory Committee of China Vanke. Brief introduction to senior management Yu Liang: For biography of Yu Liang, please refer to the “Brief introduction to directors”. Xu Hongge, male, born in 1971. He graduated from Southeast University in 1994 with a bachelor’s degree in architecture. He joined China Vanke in 1994. He had been the Deputy Manager of Shenzhen Wanchuang Architecture and Design Consultancy Co. Ltd., the Executive Deputy General Manager of Shenzhen Vanke Real Estate Co., Ltd. and the General Manager of Shenzhen Vanke Real Estate Co., Ltd. He has been the Deputy General Manager of the Company since August 2005. He is currently an Executive Vice President of China Vanke. Liu Aiming, male, born in 1969. He graduated from Department of Civil Engineering, Tsinghua University with a bachelor’s degree in building and structural engineering in 1991 and obtained a master’s degree in building materials from Tsinghua University in 1993. He had worked in China Overseas Construction (Shenzhen) Co., Ltd as Director, Assistant General Manager as well as the Manager of the Property Department. He was the Managing Director of China Overseas Construction (Shenzhen) Co., Ltd in 2001 and the Deputy General Manager of Zhonghai Real Estate Co., Ltd. in 2002. He joined the Company in 2002 as the Deputy General Manager. He is currently an Executive Vice President of China Vanke. Ding Changfeng, male, born in 1970. He graduated from Peking University with bachelor’s degree in international politics in July 1991. He obtained a master’s degree in global economics from Peking University in 1998. He had worked for Jiangsu Yancheng Party School. He joined China Vanke in 1992 and became Deputy Director of the Research Centre of the General Manager’s Office of the Company in August 1994. He was the Chief Editor of “Vanke Periodical” in 1995 and the Assistant to the General Manager of Northeast Operation and Management Department of the Company in January 1996. He was the Deputy General Manager of Northeast Department of the Company in 1997 and the Deputy General Manager of Shanghai Vanke Real Estate Co., Ltd. in 1998. He became the Manager of the Company’s Corporate Planning Department in 1999, and the General Manager of Shanghai Vanke Real Estate Company Limited in 2000. He has been the Deputy General Manager of the Company since 2001. He is currently an Executive Vice President of China Vanke. Xie Dong, male, born in 1965. He graduated from Nanjing Engineering Institution in 1987 with a bachelor’s degree in wireless electricity. He received a master’s degree in business administration from Shanghai Jiao Tong University in 1997. He had worked in Shenzhen RGB Electronic Co., Ltd., the headquarters of China 16 Shenzhen TV Company. He joined the Company in 1992. He became the manager of the Company’s Personnel Management Department in 1996, and the General Manager and Director of the Company’s Human Resources Department in 2000 and 2001 respectively. He has been the Deputy General Manager of the Company since 2004. He is currently an Executive Vice President of China Vanke. Zhang Jiwen, male, born in 1967. He graduated from Tsinghua University with a bachelor’s degree in architecture in 1987 and obtained a master’s degree in engineering in 1994 from Tsinghua University. He had worked in Guizhou Architecture and Design Institute, Shenzhen Jin Xiu Zhong Hua Development Co., Ltd., Shenzhen Window of the World Co., Ltd., Guangzhou Hua Heng Design Company and Ho & Partners Architects Engineers & Development Consultants Ltd. in Hong Kong. He joined Shanghai Vanke Real Estate Co., Ltd. in 2001 as the Deputy General Manager and became the Design Director of the Company in 2003. He became the Deputy General Manager of the Company in 2004. He is currently an Executive Vice President of China Vanke. Mo Jun, male, born in 1967. He graduated from Tsinghua University in 1991 with a bachelor’s degree in architecture. He obtained an MBA degree from the China Europe International Business School in 2004. He joined the Company in 1991. He was the Manager of Shenzhen Wanchuang Construction and Design Consultants Co., Ltd. in 1996, the General Manager of Shenzhen Vanke Real Estate Co., Ltd. in 1999, the General Manager of Beijing Vanke in 2000, the Deputy General Manager of the Company in March 2000, and the Executive Deputy General Manager of the Company in 2001. He resigned from the Company and became the Executive Deputy General Manager of Beijing Rongke Zhidi Real Estate Co., Ltd. in March 2003. He joined the Company again as the Deputy General Manager in October 2004. He is currently an Executive Vice President of China Vanke. Shirley L. Xiao: for biography of Shirley L. Xiao, please refer to the “Brief introduction to directors”. Wang Wenjin, male, born in 1966. He graduated from Zhongnan University of Economics and Law in 1994 with a master’s degree. He is a registered accountant in the PRC. He had worked for Hefei No. 10 Plastic Factory and Anhui Optical Sophisticated Mechanic Research Centre of China Academy of Sciences. He joined the Company in 1993 and became the Deputy Manager of the Company’s Finance Department in 1998. He was the General Manager of China Vanke’s Finance Department in 1999, and was Financial Controller the Supervisor of Finance in 2002. Since 2004 he has been the the Supervisor of Finance of the Company. He is currently an Executive Vice President of China Vanke. (2) Remuneration and Changes in Shareholdings of Directors, Members of Supervisory Committee and Senior Management during the Year under Review The Company continued to follow the principle of its remuneration policy, which is “to offer competitive salaries according to market principles to retain and attract high-calibre professionals”. The remuneration of the Company’s senior management members was determined not only with reference to market level but also in accordance with the growth in the overall operating results of the Company. In 2008, there had been significant consolidation in the property market, and the Company’s results were affected. This was reflected in the remuneration of the Company’s senior management, while the remuneration of those directors and members of Supervisory Committee who were not employed by the Company were determined at shareholders meeting. During the year under review, the aggregate amount of remunerations of the 12 directors, members of Supervisory Committee and seniors management who were employees of the Company was RMB17,812,000. Among the directors and members of Supervisory Committee who were not employed by the Company, three directors, namely Mr Song Lin, Mr Wang Yin, and Mr Jiang Wei, each received a 17 remuneration amount of RMB160,000 (before tax). Director Sun Jianyi received a remuneration amount of RMB180,000 (before tax) for his role as independent director and director; Independent Directors David Li Ka Fai and Judy Tsui Lam Sin Lai each received independent director’s remuneration of RMB260,000 (before tax); Independent Directors Qi Daqing and Charles Li each received independent director’s remuneration of RMB200,000 (before tax); Mr Fang Ming, a member of the Supervisory Committee, received a remuneration of RMB160,000 (before tax). Mr Song Lin, Mr Wang Yin, Mr Jiang Wei and Mr Fang Ming also received salaries from CRHC, a connected entity of CRC. Remuneration of directors, members of the Supervisory Committee and senior management of the Company is as follows: Total Any Number of remunerations Number of remunerations shares held received from Period of shares held at Reasons for received from Name Position Sex Age at the the Company service the end of changes shareholders or beginning of during the year 2008 other connected 2008 under review entities (RMB’000) Wang Shi Chairman M 58 2008.4~ 993,835 6,817,201 Implementation 2,481 No Director, of the proposal No Yu Liang M 44 2001.2~ 277,116 4,106,245 2,067 President on the transfer of capital No surplus reserve to share capital and the completion of Chairman of Ding transferring of Supervisory M 59 2007.4~ 293,431 2,018,408 1,432 Fuyuan incentive stock of Committee 2006 Stock Incentive Plan to beneficiaries’ accounts Deputy Yes Song Lin M 46 2008.4~ 0 0 - 160 Chairman Implementation No of the proposal on the transfer Sun Jianyi Director M 56 2008.4~ 432,648 692,236 of capital 180 surplus reserve to share capital Wang Yin Director M 53 2008.4~ 0 0 - 160 Yes Jiang Wei Director M 46 2008.4~ 0 0 - 160 Yes David Li Ka Independent No M 54 2008.4~ 0 0 - 260 Fai Director Judy Tsui Independent No F 54 2008.4~ 0 0 - 260 Lam Sin Lai Director Independent No Qi Daqing M 45 2008.4~ 0 0 - 200 Director Independent No Charles Li M 48 2008.4~ 0 0 - 200 Director Member of No Fang Ming Supervisory M 51 2007.4~ 0 0 - 160 Committee Member of Transfer of No Zhang Li Supervisory M 50 2007.3~ 0 1,036,204 incentive stock of 870 Committee 2006 Stock Executive Incentive Plan to No Liu Aiming Vice M 40 2002.12~ 0 1,650,978 beneficiaries’ 1,482 President accounts 18 Executive completed No Ding Vice M 39 2001.2~ 0 1,487,660 1,386 Changfeng President Executive No Xie Dong Vice M 44 2004.3~ 0 1,487,660 1,366 President Executive No Zhang Vice M 42 2004.8~ 0 1,548,950 1,396 Jiwen President Executive No Mo Jun Vice M 42 2004.10~ 0 1,548,950 1,293 President Executive No Xu Hongge Vice M 38 2005.7~ 0 1,650,978 1,489 President Director, F No Shirley L Executive 45 2007.10~ 0 1,446,849 1,294 Xiao Vice President Executive M No Wang Vice 43 2007.10~ 0 1,343,591 1,256 Wenjin President Total - - - - 1,997,030 26,835,910 - 19,552 - (3) Change and Reasons for the Change in Directors, Members of the Supervisory Committee and Senior Management during the Year under Review At the 2007 Annual General Meeting held on 23 April 2008, Mr Wang Shi, Mr Song Lin, Mr Yu Liang, Mr Sun Jianyi, Mr Wang Yin, Mr Jiang Wei and Ms Shirley L. Xiao were elected as Directors of the Company’s Fifteenth Board of Directors, and Mr David Li Ka Fai, Ms Judy Tsui Lam Sin Lai, Mr Qi Daqing, Mr Charles Li were elected as Independent Directors of the Company’s Fifteenth Board of Directors.. 2. Number and Composition of Employees As at 31 December 2008, there were 16,515 employees on the Company’s payroll, representing an increase of 0.31 per cent from that of the previous year. The average age of the employees was 30. Among the entire workforce, there were 3,342 employees engaged in the property development division, representing an increase of 8.93 per cent from the previous year. The average age of the staff working for this division was 32.3 and the average years of service were 4.3; in terms of education level, 0.51 per cent held doctoral degree, 16.40 per cent with master’s degree, 66.40 per cent were graduates, 14.51 per cent with tertiary education and 2.18 per cent with education below tertiary level. Employees with university degree or above accounted for 83.31 per cent of the total staff in the property development division. The composition of employees in the property development division by job classification is as follows: 483 marketing and sales staff, accounting for 14.45 per cent and up by 4.09 per cent from the previous year; 1,637 professional technicians, accounting for 48.98 per cent and up by 1.87 per cent from the previous year; among the professional technicians, 957 were construction staff, accounting for 28.64 per cent, 350 were designers, accounting for 10.47 per cent and 204 were cost management staff, accounting for 6.10 per cent; there were 126 project development staff, accounting for 3.77 per cent. The number of management staff, including those working in the departments of finance, audit, IT, legal, human resources, customer relations and data analysis as well as senior management staff, was 1222, accounting for 36.56 per cent and up by 22.57 per cent from the previous year. There were 13,173 employees engaged in property management, down by 1.66 per cent from the previous year. The average age was 28 and the average years of service was 2.6. In terms of education level, 0.22 per cent held master’s degree, 6.57 per cent were graduates, 11.58 per cent with tertiary education and 81.63 per 19 cent with education below tertiary level. Employees with tertiary education or above accounted for 18.37 per cent of the total staff in the property management division. VI. Corporate Governance Structure 1. Elaboration on the Company’s compliance with the requirements set out in the regulatory documents on corporate governance of listed companies China Vanke strictly adheres to the requirements of the laws, regulations and the regulatory documents governing listed companies and continues to fine-tune its corporate legal person governance structure and the regulating of its operation. In 2008, the Company continued to intensify effort to improve its corporate governance. Amendments were made to the “Rules governing the implementation of the Audit Committee” based on new requirements; “The administrative measures on information disclosure” had also been revised according to the latest disclosure regulations, and a new dedicated “Independent directors system” was formulated. The Company took further steps to strengthen self-assessment and inspection of internal control to push ahead with the development of internal control system. To further optimise its internal control system, the Company set up an audit department, which is under the direct supervision of the Board and reports to the audit committee. Such a move will increase the independency of control, supervision and evaluation of major activities.. Corporate governance is a long-term exercise and in the future, the Company will continue to adhere to the principle of “professionalism + regulation + transparency”, and to adopt self-regulation practices to further enhance the Company’s corporate governance standards. 2. The Company’s Independence in Business Operation, Staff, Assets, Organisation and Finance from those of its Single Largest Shareholder The Company continued to persist in maintaining complete independence in business operation, staff, assets, organisation and finance from those of its single largest shareholder, CRC and its connected companies to ensure independence in its business integrity and operation autonomy. The Company has not disclosed any unpublished information to CRC, its single largest shareholder, or taken any other action that might violate the code of corporate governance. 3. Execution of the duties of the Independent Directors In 2008, all independent directors continued to give independent opinions and constructive advice to the Company on its development strategies, important matters relating to operation and management, issues relating to project development, formulation of material rules, internal control improvement of the Company, remuneration scheme and accounting policies. With the active participation and promotion of the independent directors, the functions of the Board’s specialised committees became more regulated. Independent directors had actively participated in the inspection of the Company’s projects. In the past year, they paid site visits to the projects in Dongguan, Nanjing, Chengdu, Shenyang, etc, and conducted interviews during their visits; they acquired a deep understanding of the financial situation and progress of the implementation of business plans of various local companies, the differences between the planned and actual cost, procurement, construction schedule and sales of major projects. Through all of the above, the independent directors had a thorough knowledge of the operation and development of the Company. 20 In 2008, the details of the attendance of independent directors at Board meetings, specialised committee meetings and their participation in voting by correspondence at Board meetings and specialised committee meetings are as follows: Number of Number of Number of resolutions voted specialised specialised by correspondence committee committee Name of Number of Attendance in Attendance by Absence including meetings meetings Independent Board meetings person (times) proxy (times) (times) resolutions needed to be attended Directors during the year considered by attended (times) (times) specialised committees David Li Ka Fai 4 3 1 0 20 6 6 Judy Tsui 4 4 0 0 19 0 0 Lam Sin Lai Qi Daqing 3 2 1 0 10 4 3 Charles Li 3 1 2 0 10 1 1 4. The Establishment and Implementation of Appraisal, Incentive and Reward Mechanisms for Senior Management The Company implemented a balanced scorecard as its major organisation performance management system. In accordance with the concept of a balanced scorecard, senior management’s performance is evaluated in accordance with the achievement of annual business objectives based on the Company’s medium to long term development strategic goals, and such business objectives include the operating results of the period under review and sustainability of the Company. The review covers different categories including the Company’s financial position, customers, internal procedure, staff training and development. The Company has established objective benchmarks to measure the performance in each of the categories. In order to obtain objective statistics on staff and customers’ satisfaction levels, the Company had appointed an independent third party to conduct survey. The remuneration and nomination committee under the Board is responsible to study and supervise the establishment and implementation of appraisal, incentive and reward systems for senior management. Operating results of the President were appraised by the Board. The remunerations of senior management staff are determined in accordance with the Company’s operating results of the year under review, their performance with reference to the accomplishment of overall management indicators, their appraisal report, and comparison with the industry salary level. In each management year, performance review of senior management is conducted through the Company’s work report meeting. The major factors to be considered in reviewing the senior management of the Company’s headquarters include the Company’s overall performance, the value of the management staff’s role in the Company and their performance with reference to the duties stipulated under their respective positions. With regard to those in charge of front-line companies, the review is based on the performance of those front-line companies to which they are held accountable, the value of their roles and their achievements as required by their performance with reference to the duties stipulated under their respective positions. The promulgation of “Listed Companies’ Stock Option Incentives Management Methods (Trial)” in 2006 provides a basis for the Company to fine-tune its incentive and control mechanism. By referring to the stock option incentive schemes implemented by other companies at home and abroad, and taking into account the Company’s specific situation, the Company formulated Phase One (2006-2008) of The Restricted Stock Incentive Plan. The incentive plan started to operate following the approval of 18th Annual General Meeting in 2005. The implementation of the restricted stock incentive plan establishes a control mechanism between the shareholders and management team that is built upon common interests, linking the interests of the 21 Company, shareholders and management team and further optimising the Company’s corporate governance structure. The execution of the plan assists the Company in balancing its short-term and long-term objectives, stimulates continuity in value creation, helps the Company to attract and retain high-calibre talents; enhances the Company’s competitiveness, and ensures the Company’s long-term stable development. VII. Summary of Shareholders’ Meetings 1. The 2007 (20th) Annual General Meeting The notice of 2007 Annual General Meeting (“AGM”) was published in China Securities Journal, Securities Times, Shanghai Securities Journal and The Standard of Hong Kong on 3 April 2008. The last day for verifying the qualification of shareholders was 16 April 2008. The AGM was held at 9:30 am on 23 April 2008 at Vanke Architecture Research Centre, No. 63 Meilin Road of Shenzhen. A total of 322 shareholders (proxies) attended the meeting, holding 2,768,050,627 shares, representing 40.28 per cent of the Company’s total number of shares with voting rights. There were 212 shareholders (proxies) of A shares, holding 2,582,283,998 shares, representing 42.68 per cent of the Company’s total number of A shares with voting rights. There were 110 shareholders (proxies) of B shares, holding 185,766,629 shares, representing 22.60 per cent of the Company’s total number of B shares with voting rights. The AGM considered and approved (1) the Directors’ Report for the year 2007; (2) the audited financial statements and Auditors’ Report for the year 2007; (3) the resolution regarding the proposal on profit appropriation and dividend distribution and transfer of capital surplus reserve to share capital for the year 2007; (4) the resolution regarding the appointment of auditors for the year 2008; (5) Report of the Supervisory Committee for 2007; (6) the resolution regarding the adjustment of the remuneration of the directors and members of the Supervisory Committee; (7) the resolution regarding the adjustment of the application of net proceeds from “Vanke CB 2” for the Shanghai Qibao 53# project. Mr Wang Shi, Mr Song Lin, Mr Yu Liang, Mr Sun Jianyi, Mr Wang Yin, Mr Jiang Wei and Ms Shirley L. Xiao were elected as Directors for the 15th Board of the Company and Mr David Li Ka Fai, Ms Judy Tsui Lam Sin Lai, Mr Qi Daqing and Mr Charles Li were elected as Independent Directors of the 15th Board of the Company by way of cumulative voting at the AGM. The use of the corporate citizenship fund for specific projects development was also reported at the AGM. The announcement of the resolutions of the AGM was published in China Securities Journal, Securities Times, Shanghai Securities Journal and The Standard of Hong Kong on 24 April 2008. 2. The First Special General Meeting of 2008 The notice of the First Special General Meeting of 2008 (“SGM”) was published in China Securities Journal, Securities Times, Shanghai Securities Journal and The Standard of Hong Kong on 21 May 2008. The last day for verifying the qualification of shareholders was 29 May 2008. The SGM was held at 9:30 am on 5 June 2008 at Vanke Architecture Research Centre, No.63 Meilin Road of Shenzhen. A total of 209 shareholders (proxies) attended the meeting, holding 1,899,621,093 shares, representing 27.64 per cent of the Company’s total number of shares with voting rights. There were 96 shareholders (proxies) of A shares, holding 1,675,665,032 shares, representing 27.70 per cent of the Company’s total number of A 22 shares with voting rights. There were 113 shareholders (proxies) of B shares, holding 223,956,061 shares, representing 27.25 per cent of the Company’s total number of B shares with voting rights. The SGM considered and approved the resolution regarding participation in resettlement and reconstruction works in the affected area following the Sichuan earthquake. The announcement of the resolution of the SGM was published in China Securities Journal, Securities Times, Shanghai Securities Journal and The Standard of Hong Kong on 6 June 2008. VIII.Directors’ Report 1.Management Discussion and Analysis Changes in market environment and management’s opinion In 2008, there was a drastic adjustment in the residential property market. Revealed from the data published by the National Bureau of Statistics, the sales area of residential properties in the various quarters of 2008 increased by -0.3%, -10.8%, -27.2% and -25.3% when compared with those of the corresponding periods last year respectively, while sales amount in the various quarters of 2008 increased by 5.2%, -4.9%, -33.9% and -26.0% from those of the same periods last year respectively. The adjustments showed signs of growing intensity. In 2008, the sales area and sales amount of commodity housing in the PRC dropped by 20.3% and 20.1% respectively, a phenomenon first seen in the industry in more than 10 years. The adjustments in the east and major cities were more significant. In the 14 cities to which China Vanke paid high regard, their sales area generally slumped by around 50%. The deep adjustment occurred in the year under review was due to a rational adjustment in the industry following an excessive growth in 2007 as well as the influence from the global financial crisis. The property industry has been closely related to the macro economy. The financial crisis, which originated from developed countries, has now extended its reach to the real economy and drastically altered people’s confidence in economic prospects and expectations about future income in the short term. It remains uncertain as to how big the magnitude of this impact will be and how long it will last; and it remains uncertain as to how effective it will be for the series of measures taken by the various nations to confront the economic downturn and to restore confidence. Thus, China Vanke has indicated in the third quarterly report that the short-term residential market swings in the PRC may get extremely complicated, and it is beyond a company’s ability to make predictions with such market conditions. The operation strategy of an enterprise can only be based on the fundamental business logic, that is, regardless of the highly uncertain short-term outlook, an enterprise should focus on solid and lasting market principles. First, China Vanke believes that there is no fundamental change in the underlining factors that determine the industry’s long-term outlook. As China Vanke stated in its previous regular reports, “in the short-run, it is unavoidable to cause certain market participants’ suspicion and hesitation during the course of adjustment. The market needs time to reach a common consensus. There is the possibility of short-term over-adjustment; however, as long as the underlining factors that determine the industry’s fundamentals remain positive, the adjustment should be a temporary phenomenon and should not change the development trend of the industry.” Up till now, China Vanke has not swerved from this judgment. Second, facing the highly uncertain market fluctuations, an enterprise should uphold the fundamental principle of “being responsive is more important than being able to make predictions”. While ensuring safe operation is the top priority, the enterprise should enhance its market sensitivity and ability to achieve quick response, and formulate an effective and well thought-out proposal to tackle every possible market change as well as to take action promptly as the situation becomes clear. 23 During the year under review, the primary objective of the macro economic policy had been changed from anti-inflation and preventing economy from overheating to ensuring economic growth. Affected by a change in the overall economic environment and change in the supply and demand of the residential market, the adjustments made to the property industry also shifted from measures that had been introduced in succession in the past few years to curb excessive growth in the industry to prevention of a “hard-landing” of the market. Since the fourth quarter of 2008, the concerned government departments have been introducing a series of changes to the housing policy in the hope that the property industry can help stimulate healthy development of other related industries, thereby increasing the overall economic activity. These policies include: lowering the deed tax rate for individuals purchasing their first ordinary homes that are 90 sq m or smaller to 1%; adjusting the lower limit of the mortgage rate range offered by financial institutions to first- time home buyers purchasing ordinary homes for self-use or improving living standard to 0.7 times the benchmark lending rate; and adjusting the minimum down payment to 20%, etc. These measures lower the overall expenditures on purchasing residential housing for self-use, which will help those who want to purchase homes for self-use to realise their dream and ensure the market has a smooth transition. Following the promulgation of the policies, a number of companies responded positively by adopting more practical pricing strategies. The transaction volume in certain cities showed signs of rebound. During the year under review, the central government promulgated 10 measures to boost domestic demand. The government proposed to step up its efforts to facilitate housing security development, which is an extension to the central idea of the 2007 housing security system agenda “No. 24 Document of the State Council regarding Opinions on solving the housing problem of urban low-income families”. The housing security project is targeted at the low-income group with housing problem that is not addressed by the current commodity housing market. As the two major housing types in the property market, housing security and commodity housing have a complementary relationship. In the long run, the implementation of the housing security system will help build a harmonious society and facilitate healthy development of the property industry. In the short run, intensifying housing security development will help stabilise the economy, boost confidence in the macro economy. All this will provide a stimulus to the property industry. Operating results and analysis The Company’s revenue and net profit for 2008 amounted to RMB38.62 billion and RMB4.03 billion respectively, representing a 15.3% increase and a 16.7% decrease from that of the previous year respectively. The reasons that revenue increased while net profit declined a,re listed below. The management had kept reviewing and reflecting on this situation during the past year, and will diligently deal with and improve the situation in the future development of the Company. The Company’s net profit in 2008 decreased by RMB811.07 million, when compared with that of 2007, which was basically the same as the impact from provision for diminution in value of inventory. During the year under review, there was significant adjustment in the market price for housing and land premium. Pursuant to prudent financial strategy, the Company made a provision for diminution in value of inventory of RMB1,230.56 million for 13 projects exposed to risks according to market conditions. After taking into account the deferred tax factor, the aforesaid provision for diminution in value of inventory will affect the net profit after tax by RMB922.92 million and the net profit attributable to the equity shareholders of the Company by RMB891.13 million for the year under review. Although the foregoing provision was made pursuant to prudent financial strategy, it partly reflected that the Company was paying a relatively high land premium for the above-mentioned projects it acquired. Apart from the impact of provision ．． ．． for diminution in value of inventory, the Company’s booked gross margin of 2008 decreased by 3.03 percentage points when compared with that of 2007. The average booked price in 2008 was basically the same as that of 2007, while per unit booked cost increased by RMB290, per unit land cost increased by RMB244, and other per unit costs increased by RMB46. Of the booked projects in 2008, the proportion of furbished units increased over 2007. As such, by merely referring to numbers, the 24 increase of RMB46 in per unit costs excluding land premium was not significant. However, when considering the fact that ordinary housing as a percentage of the Company’s booked projects in 2008 was higher than that in the past years, it still reflected that the Company had shortcomings in its cost management in a bull market. During the year under review, the Company realised sales area and sales amount of 5.57 million sq m and RMB47.87 billion respectively, representing decreases of 9.2% and 8.6% from those of 2007 respectively. As at the end of 2008, the Company’s share in China’s residential property market was 2.34%, which slightly rose over that at the beginning of the year. In nine cities, including Shenzhen, Shanghai, Tianjin, Foshan, Xiamen, Shenyang, Wuhan, Zhenjiang and Anshan, China Vanke had the largest market share. In Hangzhou, Suzhou, Wuxi, Dongguan, and Zhuhai, the Company had the second largest market share, and the third largest market share in Zhongshan and Chengdu. Geographically, the Company realised a sales area of 1.82 million sq m and a sales revenue of RMB17.62 billion in the Pearl River Delta region, accounting for 32.7% and 36.8% of the Company’s total sales area and sales revenue respectively. In the Yangtze River Delta region, the Company realised a sales area of 1.736 million sq m and a sales revenue of RMB16.6 billion, representing 31.2% and 34.7% of the Company’s total sales area and sales revenue respectively. The Company realised a sales area of 1.379 million sq m and a sales revenue of RMB9.75 billion in the Bohai-Rim region, which accounted for 24.8% and 20.4% of the Company’s total sales area and sales revenue respectively. The other markets of the Company contributed a sales area of 636,000 sq m and a sales revenue of RMB3.9 billion, accounting for 11.4% and 8.1% of the Company’s total sales area and sales revenue respectively. The area sold in Shenzhen amounted to 417,000 sq m, mainly comprising The Dream Town, Shenzhen and The Village, Shenzhen. The sales area of the Shanghai Company amounted to 656,000 sq m which mainly comprised Charming Garden, Shanghai and Everest Town, Shanghai. In other cities, The Dream Town, Shenyang, Glamorous City, Suzhou and Waterfront, Tianjin all achieved satisfactory sales performance, with 146,000 sq m, 135,000 sq m and 131,000 sq m sold respectively during the year under review. The Company’s booked area and booked revenue amounted to 4.514 million sq m and RMB38.18 billion, representing increases of 14.6% and 15.2% from those of the previous year respectively. At the end of the report period, the Company had an area of 3.46 million sq m sold but not yet booked, which involved a contract amount of RMB27.34 billion. Given the significant decline in the market transaction volume, and in order to match its launch plans with sales progress, maintain reasonable inventory level, as well as to provide itself with sufficient time to fine- tune its product mix in accordance with the mainstream demand of home purchasers at the time, the Company reduced the area for newly commenced construction and completed area during the interim period and third quarter of 2008 respectively. The Company adjusted its planned area for newly commenced construction for the full year from 8.48 million sq m at the beginning of the year to 5.7 million sq m for the year under review. The planned completed area was adjusted from 6.89 million sq m at the beginning of the year to 5.86 million sq m for the year under review. As at the end of the year under review, the Company’s actual area of newly commenced construction was 5.233 million sq m, representing a 32.6% decrease from that of 2007 and a 38.3% decrease from the planned area of the beginning of the year; the Company’s actual completed area amounted to 5.294 million sq m, representing a 18.9% increase from that of 2007 and a 23.2% decrease from the planned area of the beginning of the year. The Company’s land development area was in line with its sales area for the full year. Starting from its 2007 interim report, China Vanke slowed down its pace in acquiring projects. Due to market uncertainty, the Company continued to adopt a prudent approach in acquiring projects in 2008. During the year under review, the Company’s total planned GFA of newly added projects in proportion to 25 China Vanke’s equity holding was 4.65 million sq m, which was lower than the areas of 9.34 million sq m acquired in 2007. 84.5% of the total planned GFA of newly added projects in proportion to China Vanke’s equity holding was secured through acquisition of companies or collaboration. The total land premium for the newly added projects for the full year was RMB13.61 billion. The average cost of land was approximately RMB2,003 per sq m, which was significantly lower than the land premium of 2007. As at the end of 2008, the GFA of the projects under planning in proportion to China Vanke’s equity holding amounted to 17.93 million sq m. During the year under review, the Company acquired land resources in Wan’an and Jianghuai, Hefei, and Yu Garden Project (formerly known as Baosheng Project), Chongqing, as well as New City Project, Xi’an through collaboration; the Company entered new cities including Hefei, Chongqing and Xi’an. As at the end of the year, the Company’s resources that could be booked in the future included RMB7.89 billion of completed properties, accounting for 9.1%; RMB34.13 billion of planned development products (corresponding to the Company’s projects under planning), accounting for 39.5%; RMB44.34 billion of products under development (including products under development but not sold and products sold but not yet boooked ), accounting for 51.3%;. As at the end of the year under review, the cash and cash equivalents held by the Company amounted to RMB19.98 billion, representing an increase of 17.2% when compared to that at the beginning of the year. The net gearing ratio was 33.1%, representing an increase of 9.7 percentage points when compared to that at the beginning of the year, and a decrease of 4.1 percentage point when compared with that at the end of the interim period. The aggregate amount of the Company’s short-term borrowings and long-term borrowings due within one year was RMB17.87 billion. Against a credit crunch in the industry, the Company’s financial position remained sound. In addition, the Company insisted on a stable operation strategy. Over the years, the Company has established excellent credibility and cooperative relationship in the financial community and such relationship stems from mutual understanding and trust. As such, the Company has a wide range of sources of funding. In September, the Company successfully issued RMB5.9 billion corporate bonds, which further strengthened its financial capacity. Review on the Company’s management in 2008 During the year under review, as the transaction volume in the residential property market plunged sharply, while the market became increasingly complicated and uncertain, the Company believed that it should not pursue short-term growth in size during the adjustment period, but rather focus on ensuring steady and healthy operation. As such, the Company persisted with the “Cash is king” strategy, by adopting various strategies to boost sales and adjusting the pace of development of new projects in accordance with sales progress. In 2008, China Vanke set sales promotion, clearing inventory, and optimising operation as its priorities in response to the sharp decline in the transaction volume in the PRC’s property market. The Company requested all frontline companies to return to fundamental business logic, to carry out their work with a market and customer focus, to augment the quality of products and services. The Company put forth the principle that “management to focus on serving frontline operations”, thereby enhancing its support to frontline companies. The headquarters organised and coordinated the building of a system for passing on internal knowledge and a platform for learning exchanges, to facilitate the sharing of professional knowledge and experience between companies in different cities. During the year under review, the Company established and fine-tuned the market monitoring system in major cities to continuously keep track of and understand the market information in major cities of the PRC. In order to better grasp customer demand characteristics and market trends, the Company classified in detail the products sold each month by layouts, requirements and payment method. In view of the fact that self-use 26 demand became the mainstream demand during the adjustment period, lower priced, small to medium sized housing units were most readily accepted by the market. As such, the Company increased the supply of the corresponding type of products. Among the units sold by China Vanke in 2008, first time buyers and buyers with demand for improving living standard accounted for more than 80%, and sales of units with area less than 90 sq m accounted for nearly 50% of total sales. During the year under review, according to its development strategy, the Company intensified its research and application of housing prefabrication. Prefabricated housing with newly commenced construction during the year included New City Garden, Golden City, Wonderland Shanghai, The Village Shenzhen and Holiday Town Beijing. These projects were in Shanghai, Shenzhen and Beijing, with an area of newly commenced construction of over 600,000 sq m. During the year under review, “Wanhui Building” project, which was sponsored by China Vanke and was ready for occupation in the middle of 2008, was named as “A pilot housing project funded by Guangdong enterprise for lease to low income group” by Guangdong Construction Department. As an attempt to explore solutions to residential housing for low to middle income family group, “Wanhui Building” gained wide recognition from society, and received the “Special Award for Residential Architecture” of China Architecture Media Awards. During the year under review, supported by shareholders, China Vanke approved the resolution regarding setting a budget of net expenses not exceeding RMB100 million to participate in the resettlement and reconstruction works in the affected area following the Sichuan earthquake. On 31 December, a dedication ceremony for the main school building and hospital complex located in Zundaozhen, Mianzhu City, Sichuan was held in Zundaozhen of Sichuan. The main school building and hospital complex, which were wholly funded by the Company, were among the first permanent public buildings funded by enterprises after the earthquake. During the year under review, State Administration of Taxation announced the PRC Enterprises Tax Payment Ranking of 2007. China Vanke ranked number 49 with a total tax payment of RMB5.31 billion in the “Top 500 China Enterprises Tax Payment Ranking” list, and ranked number One in the “Top 10 China Enterprises Tax Payment Ranking – Real Estate Industry” list, thereby becoming the biggest top taxpayer in the PRC’s property industry. During the year under review, the Company was named “The Most Respected Enterprise in the PRC” jointly organised by The Economic Observer Newspaper and the Management Case Study Center of Peking University for the sixth consecutive year. China Vanke was the only property company named among the “Ten Most Respected PRC Enterprises” by The Wall Street Journal (Asia). In the research report of “Enterprise Research on the Top 100 PRC Property Companies in 2008” co-published by the Enterprise Research Institute of Development Research Centre of the State Council, Institute of Real Estate Studies of Tsinghua University and China Index Research Institute, China Vanke ranked first overall among property companies. In Forbes’s “The Best of Asia-Pacific’s Biggest Listed Companies” (The Asian Fab 50) and “The Annual Best Business Leaders” selection, China Vanke was named in “The Asian Fab 50” list. The Company was also being named in the “2008 Financial Times Global 500” list for the first time by the UK’s Financial Times. After three of its projects received Gold Awards in 2007, four projects namely Zhongshan City Scenery, Tianjin Waterfront, Beijing Xi Garden and Chengdu Glamorous City received the “Golden Prize of Excellent Residential Development of Zhan Tianyou Award” in 2008. The Zhongshan City Scenery project received the prestigious “Zhan Tianyou Civil Engineering Award” and became the third project of China Vanke to receive such an honour. In the Second BusinessWeek/Architectural Record China Awards jointly organised by US’s magazines “BusinessWeek” and “Architectural Record”, China Vanke won the “Best 27 Client” award, and Vanke Experience Centre was named as the “Best Interior Project”, while Liangzhu Culture Museum won the “Best Public Projects” award. Vanke Tangyue project, which aims at environmental protection and cultural heritage, received the “Global Human Settlements Best Model Community Award” at the “2008 Global Human Settlements Best Model Forum”. In the First Guangsha Awards selection, which was approved by the Ministry of Housing and Urban-Rural Development of the PRC (“MOHURD”), and jointly announced by China Real Estate Association and The Center for Housing Industrialization of the MOHURD, China Vanke had six projects received awards, making the Company the biggest winner. The projects received awards included Xishan Tingyuan Beijing, Vanke Upper East Side Changchun, Spring Dew Mansion Shanghai, Nandu Jiangbin Garden Zhejiang, City Garden Wuhan (Phase I and II) and City Garden Guangzhou. Among the “2008 China Quality Awards” given out by China Association for Quality, China Vanke’s Shanghai Company was the only representative of the service industry to obtain this award, thereby becoming the first property company to receive this honour. The Company’s dedication to energy-saving and environmental protection gained much recognition. During the year, the Dream Town, Phase IV of Shenzhen Company was named as 2007 China Building Energy Saving Year Exemplar Project, organised by Science and Technology Promotion Center of MOHURD. China Vanke was also the only property company to receive the “2007 China Green Benchmarking Company” award at the first “Annual Summit of Green Companies in China” jointly organised by China Entrepreneur magazine, China Entrepreneurs Club and the Climate Group. Facing the drastic change in operating environment during the year under review, the Company strengthened its communication and exchanges with investors through regular presentations, online road show, paying visits to institutional investors and receiving investor visits. During the year under review, the Company received the “100 Companies with Best Investor Relations Management” award, the event of which was supervised by both the Shanghai Stock Exchange and Shenzhen Stock Exchange, and jointly organised by the China Investor Relations Research Centre etc, China Securities Journal, the Nanjing University and Yizhongtongda Finance Communications, for the fourth consecutive year. China Vanke received again the “Gold Bull Award for the Top 100 China Listed Companies” and “Built to Last Award – special award to the Top 100” in the “2008 Best Investor Relations of Listed Company” selection co-organised by Hexun.com and Stock Exchange Executive Council. Future development prospects Since the end of 2008, the government, based on the premise of stimulating the overall economy, has been introducing measures aimed at lowering the burden of buying houses on people, while encouraging housing sales. Many property developers responded to this market trend and adjustment with a more rational attitude and promote sales actively. Statistics revealed that the adjustment in the commodity housing transactions in the eastern part of the PRC in the fourth quarter had slowed down when compared with that of the previous period. In Shenzhen, where adjustments were first felt, the transaction volume of the residential market recently showed signs of significant rebound. In view of the macro economic trend and uncertainties in the residential market, whether or not this trend will continue requires further observation. To enterprises, the most effective approach in response to market fluctuations is to return to the fundamental business logic and to return to the starting point of the market and customers. In 2009, on the one hand, the Company will strive to facilitate growth in results, while ensuring healthy operation; on the other hand, the Company will review on its shortcomings as revealed under a bull market condition, and make the best effort to enhance its professionalism and organisational efficiency, as well as to promote technical innovation, thereby laying the foundation for long-term development. 28 One of the major directions of the Company’s development strategy in 2009 is to improve China Vanke product’s competitiveness. Product’s competitiveness encompasses the various core business capabilities involved in the process of development, including identifying prospective customers, product design, marketing, project quality, and cost management. The Company will make use of the customer satisfaction survey, market research, property management and online complaint system to adjust and optimise its existing product classification and customer segmentation. The focus on customer research is not limited to understanding customer’s current needs, but rather exploring customer’s future and potential needs. This will ensure that the Company’s customer research capability is maintained at a leading level, and that the Company’s customer identification is highly innovative and forward-looking. Product design is the Company’s traditional advantage. In 2009, the Company will maintain and enhance this advantage through design innovation, standardisation, prefabrication, turnkey furnishings and technology research. Along with growing diversification in lifestyle and society, traditional practice and media should also see a change in the choice of selection. The Company believes that expensive traditional way of marketing does not meet today’s needs. The mode of marketing needs to change. In 2009, the Company will conduct extensive research on lifestyle, work conditions, family composition, social circles, and even consumption habit of target customers, to find the right marketing channel, in order to reduce marketing cost while improving effectiveness. Continued improvement of project quality relies on pragmatic culture in quality control. In 2009, the Company requires its project control system to swift its focus from institutions, workflow and regulation to on-site management and quality control. The Company will fine-tune its on-site management duties, roles of supervisory companies and composition of project management team. Housing prices in 2008 in major cities generally declined. Much of the resources booked in 2009 came from the sales achieved in 2008. It is expected that there could be a significant decrease in the gross margin of the housing industry in 2009. Against a backdrop of low gross margin, cost management becomes more important than ever. In 2009, the Company will step up its effort to optimise its cost control. First and foremost is to conduct continued review on each process of development. Through horizontal comparison within the Group, the Company will be able to lower some of the excessive high costs to a reasonable level; and through comparing its costs with those of other companies in the industry with similar size and brand equity, the Company will be able to create a motivate to further improve its cost control. Since a wide range of products and processes are used in projects across different cities, the Company, in order to facilitate management and conduct cost evaluation, will regulate through a standardisation approach. Based on this, the Company will determine the selection of products and process standard that are most economical and establish a group purchase system, in order to maximise the benefits of economies of scale. With respect to furbished units, the Company will ensure a more reasonable cost of furnishing in response to the problem of inconsistency between the standard of furnishing and the price of project that exists in certain projects. To do this, the Company will set benchmarks such as furnishing cost/sales rate. Given that there was a relatively large gap in time between cost input and final settlement, the results of the efforts made will only be better reflected in the next two or three years. In 2009, the Company will strengthen its control over expenses for the period to enhance operational efficiency. With respect to administrative expenses, we have adopted measures that can increase productivity and simplify management. These measures include implementation of stringent control of expense budget and strict execution and supervision of information feedback. On the front of sales management, the Company has started to strengthen market and customers research, and optimise its advertisement costs and 29 sales channels, in order to further lower sales expenses. The Company aims at lowering its administrative expenses as a percentage of booked revenue and operational expenses as a percentage of booked revenue in 2009 by 20% when compared with that of 2008. Regarding financial management, the Company will lower financial expenses and capitalised interest through enhancing capital usage efficiency and the selection of source of funding. With respect to project acquisition, the Company will remain cautious, while timely capturing the opportunities arising from industry consolidation. To ensure that land reserves will meet its development requirements in the future, the Company will acquire premium but low-cost land resources through merger and acquisition and cooperation. The Company will further fine-tune its investment management system, consolidating the investment analysis tools and methods, which will take into account returns and risks, in order to practically enhance investment quality. On the front of development, the Company will insist on matching its pace of development with its sales progress, and product type with market demand. It will also insist on building inventory based on sales, strengthening the management of newly commenced construction of projects and newly launched projects, to ensure products are selling at an appropriate pace. The planned area for newly commenced construction for 2009 will be approximately 4.03 million sq m, representing approximately 23% decrease from the actual area achieved in 2008. The planned completed area for 2009 will be approximately 6.19 million sq m, representing approximately 17% increase from that of 2008. In view of market uncertainties in 2009, the Company currently has sufficient resources available for sale. With respect to project development, the Company insists that a prudent approach will help enhance the Company’s security and flexibility amid industry consolidation. The Company will also adjust its pace of development according to changes in market conditions, so that the Company can increase the area for newly commenced construction any time the market sales show signs of recovery. As an important part of China Vanke’s future competitive advantage, prefabrication technology will be actively studied and developed and implemented by China Vanke in 2009. The Company will actively push ahead with the research and application of prefabrication and energy saving by selecting appropriate projects based on standardised products. The Company will further fine-tune its managerial system that will match the current size of the Company, in order to improve management efficiency. The Company will adopt a “Streamlined management and a strong workforce” approach, simplying the levels of management by reducing management staff, while strengthening performance orientation. Besides, the Company will set up Wanchuang Design Management Centre at the headquarters based on Wanchuang Architecture and Design Consultancy Co. Ltd. in Shenzhen, to strengthen headquarters’ capability of professional management. The industry will continue to face credit crunch in 2009. While the market adjustment brought along with it challenges, it has also created the opportunities for enterprises to obtain relatively price competitive and quality resources for future development. As such, the Company will further expand its source of funding, and will consider equity financing if conditions allow. As mentioned before, the Company remains highly cautious about this issue and will take full account of the level of acceptance by the capital market and investors. Equity financing will be put on the agenda only when it gains wide recognition from shareholders in general. In addition, the Company will also consider the timing, scope and method of financing, so as to avoid causing any great negative impact on the security market, while ensuring the financing exercise will lead to profit growth. 2. Operation of the Company (1) The scope and operations of the Company’s core businesses A. By sector 30 The Company specialises in property development with commodity housing as its major products. In 2008, the Company’s sales area and sales revenue were 5,570,000 sq m, and RMB47.87 billion respectively, representing decreases of 9.2% and 8.6% respectively when compared with those of 2007 . In 2008, the total sales of commodity housing in the PRC amounted to RMB2,042.406 billion. Based on the aforesaid amount, the Company accounted for 2.34% of the domestic market share in terms of sales revenue, up by 0.27 percentage point from the previous year. During the year under review, the booked area, booked revenue and booked cost of the Company’s property projects were 4,514,000 sq m, RMB38.18 billion and RMB25.95 billion respectively, representing increases of 14.6%, 15.2% and 26.8% respectively when compared with those of the previous year. The operating profit margin of the property business for the year was approximately 32.0%, decreased by 6.25 percentage points from that of the previous year. Unit RMB 000 Revenue Cost of Sales Operating Profit Margin Sector Amount Change Amount Change Amount Change Down by Property 6.25percentage 38,181,696.19 15.18% 25,947,411.63 26.84% 32.04% points Property Management and Down by 9.43 Others 437,517.89 30.21% 351,790.01 47.51% 19.59% percentage points Total Down by 6.30 38,619,214.08 15.33% 26,299,201.64 27.07% 31.90% percentage points B. By investment region The Company adhered to its urban-economy-oriented strategy with Pearl River Delta, Yangtze River Delta and Bohai-Rim region being its core development areas. In 2008, core cities such as Shenzhen, Guangzhou, Shanghai, Beijing and Tianjin accounted for 53.4% and 57.7% of revenue and net profit respectively. Revenue Net Profit Booked Area % % % (RMB’000) (RMB’000) (000 Sqm) Pearl River Delta Region Shenzhen 5,505,624.93 14.42 86,861.27 19.94 367.90 8.15 Guangzhou 3,756,317.77 9.84 47,561.32 10.92 381.30 8.45 Dongguan 1,305,281.77 3.42 16,833.77 3.86 166.00 3.68 Zhuhai 571,324.40 1.50 14,331.14 3.29 43.30 0.96 Zhongshan 300,431.06 0.79 4,416.33 1.01 68.20 1.51 Foshan 2,183,350.97 5.72 45,248.79 10.39 289.70 6.42 Changsha 334,723.94 0.88 5,609.89 1.29 54.50 1.21 Xiamen 335,299.96 0.88 7,758.30 1.78 25.80 0.57 Sub-total 14,292,354.80 37.43 228,620.81 52.48 1,396.70 30.95 Yangtze River Delta Region Shanghai 4,845,560.43 12.69 55,581.57 12.76 398.20 8.82 Suzhou 1,732,977.68 4.54 20,218.29 4.64 157.00 3.48 Hangzhou 1,750,509.15 4.58 23,372.60 5.37 198.10 4.39 Nanjing 876,274.41 2.30 (14,689.70) -3.37 103.70 2.30 Nanchang 284,420.29 0.74 2,957.91 0.68 62.60 1.39 Ningbo 914,397.17 2.39 14,250.77 3.27 78.60 1.74 Zhengjiang 289,667.75 0.76 (34.21) -0.01 78.60 1.74 31 Wixi 1,419,254.66 3.72 5,352.19 1.23 256.40 5.68 Sub-total 12,113,061.54 31.72 107,009.42 24.57 1,333.20 29.54 Bohai-rim Region Beijing 3,097,770.84 8.11 31,174.61 7.15 338.50 7.50 Tianjin 3,174,812.99 8.32 30,165.09 6.93 407.10 9.02 Shenyang 1,994,674.96 5.22 30,225.81 6.94 351.80 7.79 Dalian 452,710.95 1.19 1,328.85 0.31 64.40 1.43 Qingdao 174,395.19 0.46 (433.87) -0.10 30.70 0.68 Changchun 251,437.15 0.66 2,470.44 0.57 51.10 1.13 Sub-total 9,145,802.08 23.96 94,930.93 21.80 1,243.60 27.55 Others Chengdu 890,064.34 2.33 (24,428.38) -5.61 208.60 4.61 Wuhan 1,740,413.43 4.56 29,458.48 6.76 331.70 7.35 Sub-total 2,630,477.77 6.89 5,030.10 1.15 540.30 11.96 Total 38,181,696.19 100.00 435,591.26 100.00 4,513.80 100.00 （2）Operating results of the major wholly-owned subsidiaries and non wholly-owned subsidiaries of the Company (Unit: RMB ) Net profit Major Project Equity Sales revenue attributable to Total assets at Name of company developed in Interest in 2008 China Vanke in the end of 2008 2008 2008 Shenzhen Vanke Real East Coast, The 100% 5,035,825.29 1,222,797.97 13,426,349.80 DreamTown Estate Company Limited Guangzhou Vanke Real The Paradiso, 100% 2,803,473.56 266,016.80 8,979,754.98 Hillside Garden Estate Company Limited Dongguan Vanke Real Green View, The 100% 1,334,693.50 192,303.71 6,758,767.81 DreamTown Estate Company Limited Foshan Vanke Property Golden Home, 100% 2,183,350.99 603,626.71 3,889,197.22 Palace Company Limited Shanghai Vanke Investment Wonderland, 100% 5,468,246.51 587,859.63 24,844,455.03 Rancho Santa Fe Company Limited Zhejiang Vanke Nandu Real A Glamorous 100% 1,750,509.14 309,038.52 8,874,066.57 City, Liangzhu Estate Company Limited Beijing Vanke Property Holiday Town, 100% 2,866,604.25 446,569.64 5,895,611.29 Wonderland Limited Tianjin Vanke Real Estate Waterfront, 100% 3,174,813.00 415,296.25 8,123,903.43 Golden Home Company Limited Shenyang Vanke Real Wonderland, A Estate Development 100% 1,560,525.08 202,196.50 3,627,073.93 Glamorous City Company Limited Note: Subsidiries of the above companies are included. Minority interests and profit and loss of minority interests are included in the net assets and net profit. (3) Implementation of the business plan In 2008, there was significant adjustment in the property industry. The sales area and sales amount of housing in the PRC for the full year decreased by 20.3% and 20.1% respectively when compared with those of the previous year respectively. The Company actively responded to the changes. In 2008, the Company’s 32 sales area and sales revenue amounted to 5,570,000 sq m and RMB47.87 billion respectively, and the Company’s share of the PRC’s residential market rose further to reach 2.34%. The Company’s planned area for newly commenced construction and completed area at the beginning of the year was 8.48 million sq m and 6.89 million sq m respectively. In response to market changes and to better adapt to the market conditions, the Company announced in its 2008 interim report that it would adjust its plan for newly commenced construction and completed construction for the full year. The area for newly commenced construction and completed area was reduced to 6.83 million sq m and 5.86 million sq m respectively. Thus, the Company was in a better position to match its construction plan with sales progress and had more cash in hand to capture future market opportunities. The market adjustment intensified in the second half of the 2008 and the operating environment became more complicated. In its 2008 third quarterly report, the Company announced that it would further lower the area for newly commenced construction to 5.7 million sq m. In 2008, the Company’s actual area for newly commenced construction and completed area amounted to 5,233,000 sq m and 5,294,000 sq m respectively. The Group’s Major Projects in 2008 (Unit: sq m) Area to be Area Accumulated Equity Planned newly Project Name Location Site Area completed area Interest GFA constructed in 2008 completed in 2008 Pearl River Delta Region The Dream Town, Shenzhen Longgang 100% 513,018 529,170 0 89,047 529,170 The Village, Shenzhen Longgang 100% 472,011 646,930 229,714 25,229 237,485 East Coast, Shenzhen Yantian 100% 342,984 265,864 0 18,722 234,857 Vanke Centre, Shenzhen Yantian 100% 61,730 80,201 0 0 0 Ravine Village,Shenzhen Baoan 60% 158,639 47,270 0 0 0 Dajia Island, Shenzhen Huizhou 100% 364,450 234,975 0 0 0 Eastern Metropolis, Shenzhen Longgang 100% 104,801 315,808 0 41,032 41,032 Rancho Santa Fe, Shenzhen Baoan 55% 72,499 43,499 43,499 0 0 Huayu Project, Shenzhen Longgang 90% 62,474 96,969 0 0 0 Jiuzhou Project, Shenzhen Longgang 90% 236,330 513,012 0 0 0 Qianlin Shanju, Shenzhen Longgang 100% 198,597 361,753 108,930 20,603 20,603 King Metropolis, Shenzhen Baoan 100% 68,310 195,000 114,429 0 0 The Paradiso, Huizhou Huicheng 55% 151,298 327,550 31,573 0 0 East Holy Valley, Shenzhen Luohu 100% 109,560 336,509 0 119,029 336,509 33 Wanxuan International, Shenzhen Futian 90% 5,438 60,088 0 0 60,088 Tianqin Bay, Shenzhen Yantian 90% 253,990 24,785 690 0 1,105 Water Cities, Tangxia 103,667 0 0 Dongguan 51% 596,786 412,504 Airport Project, Baoan 0 0 0 Shenzhen 100% 72,410 161,856 Shuangyuewan, Huidong 0 0 0 Huizhou 67% 360,000 360,000 Sea House, Haikou Haikou 100% 115,503 57,728 0 0 0 Wonderland, Foshan Nanhai 100% 533,955 557,294 0 94,904 557,294 The Dream Town, Guangzhou Luogang 100% 222,000 156,742 0 87,781 156,742 Tian Jing Garden, Guangzhou Baiyun 100% 61,324 143,979 0 75,422 75,422 The Paradiso, Guangzhou Baiyun 50% 144,657 433,584 134,490 66,214 66,214 Hillside Garden, Guangzhou Baiyun 50% 94,745 142,542 0 64,567 64,567 Golden Home, Guangzhou Yuexiu 100% 7,716 34,987 0 34,987 34,987 Golden Kangyuan, Guangzhou Liwan 100% 6,576 58,431 0 0 0 Golden Liyuan, Guangzhou Liwan 100% 5,734 40,558 0 0 0 Everest Town, Guangzhou Luogang 100% 88,105 175,971 17,036 0 0 Golden Jiangwan, Guangzhou Haizhu 100% 9,629 58,624 58,624 0 0 Aureate City, Guangzhou Panyu 100% 58,093 72,549 72,549 0 0 Wanjingde Project, Guangzhou Liwan 100% 6,623 46,147 46,147 0 0 Tongfu West Project, Guangzhou Haizhu 100% 9,929 85,682 38,516 0 0 Green View, Dongguan Liaobu 100% 301,711 429,374 0 189,367 429,374 East Canal No.1, Dongguang Guancheng 20% 83,156 239,752 8,065 140,449 216,089 Songshan Lake No.1, Dongguan Songshan Lake 100% 133,333 73,955 0 13,536 73,955 Dream Town, Dongguan Changping 100% 660,400 425,784 108,582 17,733 102,043 Blue Mountain, Dongguan Dalingshan 100% 146,674 278,074 0 0 0 Shuilian Mountain, Dongguan Nancheng 50% 249,398 366,543 0 0 0 34 The Paradiso, Dongguan Dalang 51% 91,780 178,259 118,573 0 0 King Metropolis, Dongguan Nancheng 38.6% 189,934 493,811 0 0 0 Hongxinuoya, Songshan Dongguan Lanke 90% 288,924 202,200 48,956 0 0 City Views, Southern Zhongshan District 100% 338,516 507,146 43,390 70,975 332,602 Zhuhai Hotel, Zhuhai Xiangzhou 100% 109,917 143,820 0 0 0 The Paradiso, Zhuhai Xiangzhou 100% 23,584 91,917 0 22,569 91,917 Golden Home, Foshan Nanhai 100% 86,007 220,430 0 92,433 220,430 New City Bay, Foshan Shunde 100% 69,877 139,754 57,132 0 54,906 Rancho Santa Fe, Foshan Shunde 100% 110,000 231,490 15,489 39,028 94,540 King Metropolis, Foshan Nanhai 100% 127,598 240,170 33,428 51,618 91,963 The Dream Town, Foshan Chancheng 100% 386,400 776,350 26,846 97,187 97,187 The Paradiso, Foshan Nanhai 55% 75,900 184,607 89,755 35,636 35,636 The Golden Home, Changsha Furong 80% 165,193 242,160 0 62,160 242,160 The Paradiso, Changsha Furong 80% 120,150 363,369 103,694 0 0 Golden Home, Changsha Yuhua 100% 12,526 40,085 40,085 0 0 The Paradiso, Xiamen Siming 100% 55,657 166,403 0 69,549 114,641 The Paradiso, Fuzhou Jin’an 100% 166,736 347,731 70,714 0 0 Sub-total 9,557,848 13,401,656 1,764,573 1,639,777 4,553,431 Yangtze River Delta Region Jade Villa, Shanghai Minhang 49% 296,295 216,597 29,944 0 0 Floral City, Shanghai Minhang 100% 140,678 207,773 35,861 114,588 114,588 Swallow Court, Minhang Shanghai 50% 192,663 123,149 0 34,676 123,149 New City Garden, Minhang Shanghai 51% 287,741 472,125 0 0 0 Wuzhong Road Minhang Project, Shanghai 100% 61,724 145,065 0 0 0 Qibao 53# Project, Minhang Shanghai 100% 49,294 219,848 0 0 0 Charming Garden, Shanghai Songjiang 49% 366,465 312,931 68,928 82,147 197,999 Everest Town, Shanghai Pudong 90% 238,920 321,275 48,036 59,096 289,820 Golden Yazhu, Pudong Shanghai 100% 52,998 84,796 0 84,796 84,796 Wujiefang Project, Pudong Shanghai 99.8% 121,463 129,242 0 0 0 Qijiefang Project, Pudong Shanghai 99.8% 83,854 142,612 0 0 0 35 Jiyang Road Project, Pudong Shanghai 99.8% 16,000 16,500 0 0 0 Rancho Santa Fe Minhang 100% 317,484 90,358 0 10,130 90,358 Huacao 213, Shanghai Minhang 100% 172,668 295,700 0 278,335 278,335 Wonderland, Shanghai Baoshan 100% 383,576 471,700 73,099 60,075 393,656 Luodian Project, Shanghai Baoshan 100% 231,753 254,356 86,272 0 0 Blue Mountain Town, Pudong Shanghai 100% 433,180 209,171 0 36,787 163,807 Aureate City, Shanghai Pudong 50% 405,627 809,929 171,047 0 0 Tongshan Street Pudong Project, Shanghai 75% 90,645 224,408 0 0 0 Bingjiang Project, Pudong Shanghai 25% 38,753 103,132 0 0 0 Zhaoxiang Jiangyuan Qingpu 0 0 0 Project, Shanghai 55% 77,804 79,523 North part of Wonderland, Nanchang Gaoxin 50% 374,335 444,893 3,236 50,283 429,893 Qingshan Lake, Nanchang Qingshanhu 50% 97,123 135,181 10,948 0 0 Lakefront Apartment, Nanjing Jianye 100% 134,000 208,799 0 76,176 208,799 Jinyudixiang, Nanjing Jianye 100% 48,938 97,155 0 0 0 Anpin Street, Nanjing Baixia 100% 27,325 26,790 0 0 0 Stratford, Nanjing Xiaguan 100% 27,116 44,147 2,697 11,580 11,580 The Paradiso, Nanjing Jiangning 70% 272,298 544,540 120,513 0 0 Aureate City, Nanjing Yuhua 70% 42,318 84,092 12,286 0 0 Industrial Nimble Bay, Suzhou District 70% 384,042 821,664 64,520 78,255 477,817 Ben’an Project, Industrial Suzhou District 51% 155,673 133,506 64,981 17,192 45,714 Golden Home, Suzhou Canglang 55% 134,771 242,588 0 43,960 43,960 Changfeng School Project, Suzhou Canglang 49% 48,714 48,727 0 0 0 Golf, Kunshan Bacheng 85% 433,916 328,678 0 0 0 Eastern Impression, Changjiang Wuxi Road North 70% 81,664 214,817 0 88,730 152,452 Glamorous City, Wuxi Binghu 60% 960,000 1,336,620 29,869 155,418 528,096 Golden Home, Wuxi New District 55% 122,206 293,577 0 0 0 The Paradiso, Wuxi Binghu 55% 154,468 386,250 80,239 0 0 Industrial Jinyudixiang, Suzhou 10,444 0 0 Zone 51% 47,177 118,099 Glamorous City, Zhenjiang Runzhou 100% 834,900 915,450 67,372 77,036 105,000 Liangzhu New Town, Hangzhou Yuhang 100% 3,354,214 2,309,282 107,984 127,582 444,040 Horizon Square, Hangzhou Bingjiang 100% 98,198 166,866 0 0 166,866 36 Venice City, Hangzhou Xiaoshan 50% 213,344 264,731 0 13,505 264,731 Aureate City, Hangzhou Shangcheng 60% 3,584 13,593 0 0 0 A Glamorous City, Hangzhou Jianggan 100% 84,438 190,104 0 100,713 100,713 West Spring Butterfly Garden, Hangzhou Xihu 51% 155,838 353,320 0 0 0 Golden Home, Fuyang 111,159 0 0 Hangzhou 55% 55,576 111,159 Spring Bay, Hangzhou Fuyang 100% 499,483 208,981 51,317 0 0 Golden Mingjun, Hefei Shushan 50% 107,326 387,447 60,701 0 0 Jianghuai Project, Shushan 0 0 0 Hefei 50% 115,714 412,355 Golden Town, Ningbo Qinzhou 100% 190,369 313,602 109,628 142,939 142,939 Aureate City, Ningbo Qinzhou 75% 18,500 49,948 49,948 0 0 Sub-total 13,337,154 16,137,150 1,471,030 1,743,998 4,859,107 Bohai-Rim region Holiday Town, Beijing Fengtai 50% 224,289 413,304 100,529 151,878 151,878 Wonderland, Beijing Shunyi 100% 195,817 304,817 0 122,578 218,813 Glorious Palace, Beijing Fengtai 100% 35,465 97,393 0 22,290 97,393 Aureate City, Beijing Chaoyang 100% 55,885 141,205 0 0 0 Hongshi Paint Factory, Beijing Fengtai 100% 59,800 184,502 150,059 0 0 Dream Town, Beijing Changping 49% 178,908 543,461 167,117 0 0 Golden Sunshine, Beijing Chaoyang 60% 12,489 17,478 0 17,478 17,478 No. 5 Park Front Boutique Apartment, Beijing Chaoyang 60% 37,917 97,044 97,044 0 0 Waterfront, Tianjin Dongli 100% 2,708,886 1,910,211 0 182,521 391,745 Golden Home, Tianjin Nankai 100% 58,396 105,315 0 105,315 105,315 Holiday Town, Tianjin Xiqing 55% 228,541 296,382 0 91,185 237,550 Development The Paradiso, Tianjin District 96% 60,200 283,684 0 0 0 Xiaguang Road #5, Tianjin Nankai 55% 62,672 41,366 0 41,366 41,366 Holiday Dew Garden, Xiqing 59,907 0 0 Tianjin 100% 229,300 343,101 A Glamorous City, Dongli 94,142 0 0 Tianjin 100% 176,773 258,579 Jin’ao International, Xiqing 0 0 0 Tianjin 100% 58,577 162,566 Binhai Modern, Development 0 0 0 Tianjin District 100% 6,538 40,312 Development Binhai East, Tianjin 0 0 0 District 100% 32,270 51,650 New Milestone, Hunnan New Shenyang District 100% 52,659 119,260 0 70,461 70,461 37 Rancho Santa Fe, Shenyang Dongling 100% 344,365 111,539 37,008 49,737 62,201 New Elm Mansion, Hunnan New Shenyang District 100% 182,139 289,647 0 64,347 173,329 A Glamorous City, Shenyang Yuhong 100% 156,817 297,026 109,126 64,654 64,654 Dream Town, Shenyang Heping 49% 362,282 895,175 143,143 112,361 254,655 Wonderland, Shenyang Yuhong 100% 387,471 551,319 0 76,122 551,319 Golden Home, Anshan Tiedong 100% 48,874 97,969 10,702 42,853 42,853 Dream Town, Anshan Gaoxin 100% 167,664 366,861 75,539 0 0 The Paradiso, Hunnan New Shenyang District 100% 226,356 565,000 125,083 0 0 Ravine Village, Dalian Ganjingzi 55% 363,716 380,922 33,877 73,247 108,987 A Glamorous City, Ganjingzi 33,847 0 0 Dalian 5% 195,526 404,240 City Garden, Dalian Shahekou 100% 28,580 33,942 0 0 0 Jingyue Rancho Santa Fe, Development Changchun District 100% 130,440 77,468 0 11,551 77,468 Economic Yangpu Garden, development Changchun District 100% 89,678 208,128 98,069 0 0 Jingyue Tanxi Villa, Development 18,860 0 0 Changchun District 100% 75,000 48,435 A Glamorous City, Qingdao Chengyang 80% 200,289 355,686 51,094 59,342 140,402 Wonderland, Qingdao Jimo 55% 150,753 241,205 37,413 0 0 Aureate City, Qingdao Sifang 60% 61,873 180,000 37,413 0 0 Sub-total 7,647,205 10,516,192 1,541,439 1,359,286 2,807,866 Other Cities A Glamorous City, Chengdu Chenghua 60% 308,501 748,216 0 24,752 333,059 The Paradiso, Chengdu Chenghua 100% 56,293 293,700 58,876 0 0 Twin Riverside, Chengdu Xindu 100% 267,347 360,400 0 37,017 280,668 Spring Dew Masion, Chengdu Wenjiang 90% 24,773 108,529 0 108,529 108,529 King Metropolis, Chengdu Jinniu 75% 79,331 359,031 116,403 0 0 Golden Lingyu, Chengdu Qingyang 100% 49,628 297,980 0 0 0 Jinrun Huafu, Chengdu Jingjiang 100% 52,895 198,576 0 0 0 Golden Hairong, Wuhou 40,872 0 0 Chengdu 49% 54,970 222,793 Haiyue Huicheng, Shuangliu 0 0 0 Chengdu 90% 104,381 521,698 City Garden, Wuhan Wuchang 100% 359,947 420,870 0 77,630 420,870 38 A Glamorous City, Wuhan Wuchang 100% 218,340 405,457 27,042 85,161 85,161 Dew Mansion, Wuhan Wuchang 55% 36,390 89,303 0 64,537 89,303 Golden Home, Wuhan Jianghan 100% 23,851 149,618 0 31,070 31,070 The Peninsula, Wuhan Dongxi Lake 100% 201,800 253,361 0 122,474 244,173 Aureate City, Wuhan Jianghan 55% 12,022 36,066 0 0 0 Golf City Garden, Wuhan Dongxi Lake 49% 135,620 393,858 23,384 0 132,721 Caimao Street, Wuhan Wuchang 55% 59,790 191,300 0 0 0 Golden Junjing, Jianghan 0 0 0 Wuhan 90% 65,901 299,337 New City, Xi’an Yanta 51% 41,765 260,735 189,455 0 0 Yu Garden, Chongqing Yubei 51% 229,579 343,841 0 0 0 Sub-total 2,383,122 5,954,667 456,032 551,171 1,725,555 Total 32925,329 46,009,665 5,233,074 5,294,231 13,945,958 3. Major suppliers and customers (1) The aggregate purchase amount from the Company’s five largest suppliers as a percentage of its total purchase during the year In 2008, the Company continued to deepen its relationship with its partners and further centralised procurement and increase strategic collaborations in order to achieve economies of scale. In 2008, purchase made through centralised procurement and strategic collaborations accounted for 54.9% of the total purchase. During the year, the aggregate purchase amount from the five largest material and equipment suppliers was about RMB720 million, accounting for 3.0 per cent of the total purchase of material and equipment for the year. (2) The aggregate sales amount to the Company’s five largest customers as a percentage of its total sales for the year The Company’s major project is commodity housing. Most of its customers are individual homebuyers from various cities where the Company has launched its projects. Only for certain projects are there signs of a small number of institutional buyers or bulk purchasers. As a result, sales to major customers only account for a small proportion of the annual turnover. Sales to the five largest customers amounted to approximately RMB333 million, accounting for 0.69% of the Company’s total sales revenue of 2008. 4. Financial status of the Company During the year under review, the Company’s operation remained stable and its financial position was sound. Unit:RMB ’000 Financial indicators 31-Dec-08 31-Dec-07 Change(+/-) Reasons for changes Total Assets 120,586,410 101,137,628 19.23% Enlargement of the Company Properties held for development 34,131,859 27,877,598 22.43% Increase in newly added projects Increase in resources of property Properties under development 44,340,454 34,338,168 29.13% development Part of payment in advance transferred Trade and other receivable 8,416,532 12,495,032 -32.64% to inventory Increase in deposit receivable of sales an Trade and other payable 43,979,208 37,246,428 18.08% land appreciation tax payments Share holders' equity 31,891,925 29,278,648 8.93% Increase in the net profit of the year Financial indicators Jan-Dec 2008 Jan-Dec 2007 Change(+/-) Reasons for changes 39 Revenue 38,619,214 33,486,561 15.33% Increase in booked sales Increase in cost and provision for Gross profit 12,320,012 12,790,579 -3.68% diminution in value of inventory Increased pressure on sale due to market Distribution costs 1,860,350 1,194,544 55.74% adjustment Administrative expenses 1,549,021 1,787,642 -13.35% Decrease in labor cost Decrease in total profit and income tax Income taxation 3,780,358 4,311,185 -12.31% rate Profit attributable to equity Decrease in total profit and provision for 4,033,170 4,844,235 -16.74% holders of the company diminution in value of inventory Other financial indicators Jan-Dec 2008 Jan-Dec 2007 Change(+/-) Reasons for changes Increase in receipts in advance, bank Gearing ratio 67.81% 66.46% 1.35% loans and etc. Relatively rapid increase in inventory Current ratio 1.76 1.96 -0.20 among current assets Relatively rapid increase in receipts in Quick ratio 0.43 0.60 -0.17 advance among current liabilities Increase in receipts in advance and Shareholders’ equity ratio 32.19% 33.54% -1.35% corporate bonds payable Account receivable turnover 8.3 6.6 1.7 Increase in total account receivables (Day) Relatively rapid increase in land to Inventory turnover (Day) 1,050 882 168 develop and construction in progress of inventory Provision for diminution in value of inventory As at the end of the Reporting Period, pursuant to its prudent financial strategy, the Company provided provision for diminution in value of inventory for its 13 projects. The details are shown below: Unit: RMB ‘000 Provision Additional Total Effect on net profit Project provided as provision provision Effect on attributable to No. City Equity Name at the end provided provided for net profit shareholders of the of Q3 during Q4 the year 2008 Company Golden 1 Fuzhou Rongjun 100% 152,170 0 152,170 114,125 114,125 Hupo 2 Shanghai Junyuan 100% 0 65,780 65,780 49,335 49,335 3 Guangzhou Aureate City 100% 0 87,390 87,390 65,543 65,543 4 Wuhan Aureate City 55% 0 40,280 40,280 30,213 16,617 5 Wuxi Golden City 55% 0 53,910 53,910 40,433 22,238 Holiday 6 Tianjin Dew Garden 100% 31,000 39,230 70,230 52,673 52,673 7 Beijing Aureate City 100% 121,120 0 121,120 90,840 90,840 8 Nanjing Jinyudixiang 100% 63,590 0 63,590 47,693 47,693 The 9 Nanjing Paradiso 100% 166,880 0 166,880 125,160 125,160 10 Nanjing Aureate City 100% 0 80,060 80,060 60,045 60,045 Haiyue 11 Chengdu Huicheng 90% 0 81,500 81,500 61,125 61,125 Golden 12 Chengdu Lingyu 100% 0 216,120 216,120 162,090 162,090 Jinrun 13 Chengdu Huafu 100% 0 31,530 31,530 23,648 23,648 Total 534,760 695,800 1,230,560 922,923 891,132 40 The Company will continue to review and assess the risk of provision for diminution in value of inventory according to market change in the future. 5. Investment of the Company (1) Use of proceeds from the capital market A. Issue of Corporate Bonds Having obtained the approval from the relevant authorities, the Company issued an announcement on 2 September 2008 that it would make a public issue of corporate bonds with a par value not exceeding RMB5.9 billion. The corporate bonds in this issue were classified into secured bonds and unsecured bonds with total proceeds of RMB5.9 billion. The net proceeds, after deducting issuing expenses, of RMB5,760.12 million were received on 10 September 2008. Shenzhen Nanfang-Minhe CPA Firm Co., Ltd (深圳南方民和 会计师事务所) had prepared a capital verification report (Shen Nan Yan Zi (2008) No. 182). During the year under review, the proceeds had been used in accordance with the conditions stated in the prospectus. B. Public issue of A Shares in 2007 Having obtained the approval from the relevant authorities, the Company issued a prospectus regarding the public issue of A shares on 22 August 2007. The Company issued 317,158,261 shares (par value: RMB1 per share) at an issue price of RMB31.53 per share, raising proceeds of RMB9,999,999,969.33. After deducting issuing expenses of RMB63,398,268.11, the net proceeds amounted to RMB9,936,601,701.22 and were received on 30 August 2007. Shenzhen Nanfang-Minhe CPA Firm Co., Ltd (深圳南方民和会计师事务所) had prepared and filed a capital verification report (Shen Nan Yan Zi (2007) No. 155). The aforesaid proceeds were used to invest in 11 projects. Details on the investment amount, investment gain, development progress of the projects as of 31 December 2008 are as follows: (Unit: RMB ’000) Total amount of proceeds 9,936,600 Fund used for investment during the year 2,013,160 Amount of proceeds with changed 0 usage Accumulated fund used 8,690,480 Percentage of proceeds with 0% changed usage Is there Fund used any for Planned Accumulated Estimated Earnings Change in Investment Projects change investment Progress investment funds used earnings generated feasibility in during the project year Science City H3, No 600,000 80,740 600,000 62% 116,820 - No Guangzhou Jinshazhou Project, Baiyun District No 800,000 0 800,000 37% 712,240 48,030 No Guangzhou Chancheng Nanzhuang Project, No 900,000 432,240 900,000 31% 725,680 182,730 No Foshan Construction Zhuhai Hotel Project, Xiangzhou, No 650,000 20,180 542,800 not 239,730 - No Zhuhai commenced Jiangcun Project West Lake No 700,000 0 700,000 29% 369,630 No District, Hangzhou Liangzhu Project, Yuhang District, No 1,700,000 0 1,700,000 31% 1,912,800 124,930 No Hangzhou Jinse Shuian Project, Yinzhou No 1,636,600 683,580 1,417,570 65% 350,990 143,080 No District, Ningbo 41 Construction Wujiefang Project, Pudong, No 1,200,000 158,710 542,680 not 168,830 - No Shanghai commenced Zhonglin Project, Pudong, No 700,000 448,930 661,250 100% 145,090 263,720 No Shanghai Construction Anpin Street Project, Baixia No 650,000 8,850 446,140 not 130,350 - No District, Nanjing commenced Huangjiayu Project, Xiaguan No 400,000 179,930 380,040 88% 159,090 3,740 No District, Nanjing Total No 9,936,600 2,013,160 8,690,480 - - - No (1) Zhuhai hotel project was affected by the Zhuhai municipal government’s adjustment of the overall planning of the city centre, and had not commenced construction according to schedule. The Company is actively preparing for the project. Shanghai Wujiefang Project was affected by the government’s redirection of roads due to the organisation of Expo, and was not able to commence construction according to schedule. The Company is actively preparing for the project. Nanjing Anpin Street Project was not able to commence construction according to schedule, as the government had not provide specific details on planning design due to Remarks on delay and estimated consideration for preservation of the city’s heritage. The Company is actively preparing for earnings (by project) the project. (2) In view of the current sales progress of projects and market forecast, it isexpected that the earnings to be generated from Science City H3 Project of Guangzhou, Jinshazhou Project of Baiyun District, Guangzhou, Anpin Street Project of Baixia District, Nanjing and Huangjiayu Project of Xiaguan District, Nanjing, will not reach the estimated level stated in the prospectus; it is expected that other projects financed by the raised proceeds will have a return rate above the estimated return rate, and using weighted average calculation method, it is expected that the overall return from the projects financed by the raised proceeds will be higher that the estimated level stated in the prospectus. Remarks on reasons and procedures for changes (by N/A project) To improve the efficiency in the utilisation of the proceeds, to reduce financial costs, and to safeguard the interests of the Company and its investors, the Company submitted the “Resolution regarding the use of certain portion of the capital that has been designated for specific projects to increase working capital on a short-term basis” to the Board for consideration and approval on 18 February 2008. With the approval of the Board, the Company applied not more than RMB980 million of the proceeds from the public issue of A shares that had been designated for specific projects and would not be used for that Use of idle capital raised from purpose in the near term, to increase its working capital on a short-term basis, i.e. up to 27 market to increase working capital August 2008. The use of certain portion of the capital that had been designated for specific on a short-term basis projects for increasing working capital will not affect the normal operation of the investment projects financed by the proceeds. On 25 August 2008, the Company fulfilled its undertaking and transferred RMB980 million that had been used to increase working capital back to the designated account for raised proceeds. For details, please refer to the announcements published in China Securities Journal, Securities Times, Shanghai Securities News and The Standard in Hong Kong on 28 February and 27 August 2008. Application of the balance of the As of 31 December 2008, the Company had applied RMB8,690.48 million of the proceeds proceeds in accordance with the prospectus. The amount represened 87.5% of the net proceeds of 42 RMB9,936.6 million. The balance of proceeds of RMB1,246.12 million will be applied in accordance with the progress of project development. C. Private Placement of A Shares in 2006 Pursuant to the relevant regulatory body’s approval, on 13 December 2006 the Company the total proceeds from the private issue of A Shares for specific targets was 4.2 billion. After deducting the issue expenses, the net proceeds were 4,196.7 million. Before 2008, the proceeds used from the private placing of share according to the prospectus wasRMB4,180.93 million, with the exception of the amount of RMB15.77 million designated for investment in Wuhan Goldne Home had not been used, the remaining amount of proceeds intended to be used in other planned investments had been fully applied. In 2008, the amount of proceeds of RMB15.77 million planned for investment in Wuhan Goldne Home had been applied completely. Details are as follows: (Unit: RMB ’000) Fund used for investment during the Total amount of proceeds 4,196,700 15,770 year Amount of proceeds with changed 0 usage Accumulated fund used 4,196,700 Percentage of proceeds with changed 0% usage Is there Fund used any for Planned Accumulated Estimated Earnings Change in Investment Projects change investment Progress investment funds used earnings generated feasibility in during the project year Wuhan Goldne Home No 500,000 15,770 500,000 68% 123,430 69,680 No Total No 500,000 15,770 500,000 - - - No Remarks on delay and estimated N/A earnings (by project) Remarks on reasons and procedures N/A for changes (by project) Application of the balance of the N/A proceeds D. Covertible bonds issued in 2004 Having obtained the approval from the relevant authorities, the Company issued 1.99 billion convertible bonds to the public on 24 September 2004. As at 31 December 2007, with the exception of the balance of RMB106.12 million intended for the investment in Shanghai Qibao, Land Lot No. 53 had not been applied, all the other funds had been fully applied. The overall return on the application of the fund had been higher than that disclosed in the prospectus. Shanghai Qibao 53＃Project is located in Qibao Town, Minhang district, Shanghai. The project has not commenced construction due to the government’s subway development. The fund designated for the project has, therefore, not been fully applied according to schedule. During the year under review, as the government has adjusted its planning, the project has been amended from a composite project for residential and commercial purpose to a project with a commercial focus, and the date of construction commencement has yet to be confirmed. The Company, having obtained the approval from the 2007 Annual General Meeting, plans to apply the unused funds of RMB106.12 million, originally designated for the Shanghai Qibao 53＃ Project, to invest in District 3, Phase II of Wonderland, Shanghai, to improve the efficiency in the utilisation of raised proceeds. For details, please refer to the announcements published in China Securities Journal, Securities Times, Shanghai Securities News and The Standard of Hong Kong on 18 March and 24 April 2008. 43 During the year under review, the use of proceeds is as follows: (Unit: RMB ’000) Total amount of capital for new project 106,120 Actual Accumul Planned investme ated Achieve investment nt Earnings On New project Original project investme estimated for the new amount generated schedule nt gains project during amount the year District 3, Phase II of Shanghai Qibao No. 106,120 106,120 106,120 63,560 Yes No Wonderland, Shanghai 53 Project Total - 106,120 106,120 106,120 63,560 - - Due to market changes, the earnings generated from District 3, Phase II of Wonderland, Explanation for delay and not achieving the estimated gains Shanghai was lower than the estimated earnings submitted presented to the shareholders meeting for approval. Its current the net profit margin is 11.72%. （2）Use of capital not from the capital market A. Equity investment During the year under review, the Group’s net long-term investment amount increased by RMB1,066 millon, representing an increase of 14.77% from that of the previous year. 1) The major companies promoted and established by the Group during the year under review are as follows: Equity Registered investment by Scope of No. Newly-established company Currency capital Chian Vanke business (RMB) Fuyang Vanke Real Estate 1 Development Company Limited (富 RMB Real estate 阳万科房地产开发有限公司) 300,000,000.00 300,000,000.00 development Vanke (Chongqing) Real Estate 2 Company Limited (万科（重庆）房 RMB Real estate 地产有限公司) 80,000,000.00 80,000,000.00 development Hefei Vanke Property Company Real estate 3 RMB Limited (合肥万科置业有限公司) 20,000,000.00 20,000,000.00 development Xi’an Vanke Company Limited (西安 Real estate 4 RMB 万科企业有限公司) 20,000,000.00 20,000,000.00 development Guangzhou Vanke Duhua Real Estate 5 Company Limited (广州市万科都华 RMB Real estate 房地产有限公司) 10,000,000.00 10,000,000.00 development Hangzhow Vanke Rongda Real Estate 6 Company Limited (杭州万科容大房 RMB Real estate 地产有限公司) 30,000,000.00 16,500,000.00 development Tianjin Zhongtian Wanfang 7 Investment Company Limited (天津 RMB 中天万方投资有限公司) 20,000,000.00 20,000,000.00 Investment Tianjin Wanzhu Investment Company 8 RMB Limited (天津万筑投资有限公司) 20,000,000.00 20,000,000.00 Investment Tianjin Wanfu Investment Company 9 RMB Limited (天津万福投资有限公司) 10,000,000.00 10,000,000.00 Investment Xi’an Vanke Chengnan Property 10 Company Limited (西安万科城南置 RMB Real estate 业有限公司) 10,000,000.00 10,000,000.00 development 44 Dalin Vanke Property Company Real estate 11 Limited (大连万科置业有限公司) RMB 30,000,000.00 30,000,000.00 development Fuyang Water Bay Property 12 Company Limited (富阳泉水湾置业 Real estate 有限公司) USD 29,000,000.00 68,345,945.32 development Total 604,845,945.32 Save as the aforesaid companies, the Group had promoted and established another 5 companies which engage in landscaping, consultancy and furnishing projectof, with a total amount of investment of RMB9.1 million. 2). The major companies the Group acquired during the year under review are as follows: i) In January 2008, the Company entered into an agreement regarding the acquisition of the 100% equity interests in Shanghai Xiangda Real Estate Development Company Limited and as well the land of Shanghai Tongshan Street Project (“Shanghai Xiangda”) for a total consideration of RMB2,056.12 million. ii) In July 2008, the Group acquired 70% equity interests of Shenyang Vanke Hunnan Jinyu Real Estate Co., Ltd. for a total cash consideration of RMB715.78 million, thereby obtaining land for the Paradiso project in Shenyang. The total amount of investment in another 16 companies acquired by the Group during the year under review was RMB2011 million. 3). During the year under review, the Company increased the capital of 19 majority-owned subsidaries by RMB2,885 million to facilitate their business development. Of the total amount, RMB975 million was for Shanghai Xiangda Real Estate Development Company Limited, RMB500 million for Shanghai Meilan Home Property Company Limited (上海美兰华府置业有限公司), US$65.44 million for Chengdu Vanke Guanghua Property Company Limited (成都万科光华置业有限公司), RMB370 million for Shanghai Luolian Property Company Limited (上海罗联置业有限公司), US$30 million for Chengdu Vanke Guobin Property Company Limited (成都万科国宾置业有限公司), RMB150 million for Shanghai Junke Investment Management Company Limited (上海郡科投资管理有限公司). Capital injection to other companies amounted to RMB248 million. B. Other investments During the year under review, the Company had acquired 28 new projects, with a total site area of approximately 3.642 million sq m and a planned GFA of approximately 6.795 million sq m, of which approximately 4.65 million sq m of planned GFA is in proportion to China Vanke’s equity holding. (Unit: sq m) Planned Equity Planned GFA to Region Location Site Area Progress Project interest GFA Vanke’s Equity Airport Project Baoan 100% 72,410 161,856 161,856 Pre-construction Shenzhen The Village Longgang 100% 39,407 75,128 75,128 On sale Huizhou Twin Moonbay Huidong 67% 360,000 360,000 241,200 Pre-construction Palace Nancheng 38.6% 189,934 493,811 190,611 Pre-construction Songshan Commenced Dongguan Lake construction Industrial Hongxinuoya Zone 90% 288,924 202,200 181,980 Shanghai Zhaohangjingyuan Qingpu 55% 77,804 79,523 43,738 Pre-construction Industrial Commenced Suzhou Jinyudixiang Garden 51% 47,177 118,099 60,230 construction Commenced Golden Home Fuyang Hangzhou 55% 55,576 111,159 61,138 construction Spring Bay Project Fuyang 100% 499,483 208,981 208,981 On sale 45 Commenced Ningbo Aureate City Qinzhou 75% 18,500 49,948 37,461 construction Holiday Dew On sale Xiqing Mansion 100% 229,300 343,101 343,101 A Glamorous City Dongli 100% 176,773 258,579 258,579 On sale Jin’ao Commenced Tianjin Xiqing International 100% 58,577 162,566 162,566 construction Development Pre-construction Binhai Modern District 100% 6,538 40,312 40,312 Binhai Eastern Development Pre-construction District District 100% 32,270 51,650 51,650 Hunnan New On sale Shenyang The Paradisco District 100% 226,356 565,000 565,000 Commenced Dalian A Glamorous City Ganjingzi 5% 195,526 404,240 20,212 construction Jingyue Commenced Changchun Tanxi Villa Development construction District 100% 75,000 48,435 48,435 The Wonderland Jimo 55% 150,753 241,205 132,663 On sale Qingdao Aureate City Sifang 60% 61,873 180,000 108,000 On sale Commenced Golden Hairong Wuhou Chengdu 49% 54,970 222,793 109,168 construction Haiyue Huicheng Shuangliu 90% 104,381 521,698 469,528 Pre-construction Caimao Street Wuchang 55% 59,790 191,300 105,215 Pre-construction Wuhan Golden Junjing Jianghan 90% 65,901 299,337 269,403 Pre-construction Xi’an New City, Xi’an Yanta 51% 41,765 260,735 132,975 On sale Chongqing Yu Garden Yubei 51% 229,579 343,841 175,359 Pre-construction Golden Mingjun Shushan 50% 107,326 387,447 193,723 On sale Hefei Jianghuai Project Shushan 50% 115,714 412,355 206,178 Pre-construction Total 3,641,607 6,795,299 4,654,391 The total land premium of the above-mentioned new projects was RMB13.61 billion. As at the end of 2008, the Company had paid a total premium of RMB9.4 billion for the above-mentioned new projects. In addition, during the year under review, the Company added four new projects, of which the related transfer procedure is being handled. These projects have a total site area of 201,000 sq m, of which 500,000 sq m of planned GFA is in proportion to China Vanke’s equity holding. As there is still uncertainty over the completion of the acquisition of these projects, they are not included in the table of newly added projects. Subsequent event: From the end of the year under review to 18 February 2009, the Company acquired one new project, with a total site area of 38,100 sq m and a total planned GFA of 136,000 sq m. The total land premium was RMB454 million. Details are as follows: Constructed Site area Planed GFA area hold by Project City Project Name Location Equity (sq m) (sq m) China Vanke progress (sq m) Commenced Guangzhou Datansha Project Liwan 100% 38,111 135,689 135,689 construction 6.Project development plan for the new year As at the end of 2008, there were 106 projects acquired by the Company and were under planning. The total area of these projects amounted to approximately 22.81 million sq m, of which approximately 17.93 million sq m was in proportion to China Vanke’s equity holding. Considering the market uncertainty in the future, the Company adopted a more cautious approach, insisting on matching its development pace with its sales progress. The planned area for newly commenced construction and completed area for 2009 will be approximately 4.03 million sq m and 6.19 million sq m 46 respectively. The planned area for newly commenced construction for 2009 was 23% less than the actual area for newly commenced construction for 2008. The Group’s Major Projects in 2009 (Unit: sq m) Planned GFA area for Planned construction Planed newly completed of which not Project Name Location Equity Site area GFA commenced area in commenced construction 2009 as at the end in 2009 of 2008 Pearl River Delta Region The Village, Shenzhen Longgang 100% 472,011 646,930 40,013 117,074 143,170 East Coast, Shenzhen Yantian 100% 342,984 265,864 0 31,007 0 Vanke Centre, Shenzhen Yantian 100% 61,730 80,201 0 80,201 0 Ravine Village, Shenzhen Baoan 60% 158,639 47,270 4,080 0 47,270 Dajiang Island, Shenzhen Huizhou 100% 364,450 234,975 0 0 234,975 Eastern Metropolis, Shenzhen Longgang 100% 104,801 315,808 0 36,775 238,001 Rancho Santa Fe, Shenzhen Baoan 55% 72,499 43,499 0 43,499 0 Huayu Project, Longgang Shenzhen 60% 62,474 96,969 96,969 0 96,969 Jiuzhou Project, Longgang Shenzhen 90% 236,330 513,012 59,580 0 513,012 Qianlin Shanju, Longgang Shenzhen 100% 198,597 361,753 75,792 49,090 252,823 Palace, Shenzhen Baoan 100% 68,310 195,000 80,571 120,379 80,571 The Paradiso, Huizhou Huicheng 100% 151,298 327,550 22,369 31,573 295,977 Tianqin Bay, Shenzhen Yantian 90% 253,990 24,785 3,664 5,180 12,793 Water Cities, Tangxia Dongguan 51% 596,786 412,504 65,166 116,737 308,837 Airport project, Baoan Shenzhen 100% 72,410 161,856 20,000 0 161,856 Shuangyuewan, Huidong Huizhou 67% 360,000 360,000 0 0 360,000 Tian Jing Garden, Guangzhou Baiyun 100% 61,324 143,979 0 68,557 0 The Paradiso, Baiyun Guanghzou 50% 144,657 433,584 56,105 76,020 157,233 Hillside Garden, Baiyun Guangzhou 50% 94,745 142,542 0 33,229 0 Golden Kangyuan, Liwan Guangzhou 100% 6,576 58,431 0 58,431 0 Golden Liyuan, Liwan Guangzhou 100% 5,734 40,558 0 40,558 0 Everest Town, Guangzhou Luogang 100% 88,105 175,971 0 45,567 0 Golden Jiangwan, Haizhu 100% 9,629 58,624 0 0 0 47 Guangzhou Aureate City, Guangzhou Panyu 100% 58,093 72,549 0 26,873 0 Wanjingde Project, Guangzhou Liwan 100% 6,623 46,147 0 46,147 0 Tongfu West Project, Guangzhou Haizhu 100% 9,929 85,682 47,166 0 47,166 East Canal No.1, Dongguan Guancheng 20% 83,156 239,752 0 23,663 0 Dream City, Dongguan Changping 100% 660,400 425,784 35,254 30,896 212,842 Blue Mountain, Dongguan Dalingshan 100% 146,674 278,074 30,000 0 278,074 Shuilian Mountain, Dongguan Nancheng 50% 249,398 366,543 0 0 366,543 The Paradiso, Dongguan Dalang 51% 91,780 178,259 36,049 67,369 59,686 Palace, Dongguan Nancheng 38.6% 189,934 493,811 87,800 0 493,811 Hongxinuoya, Songshan Dongguan Lake 90% 288,924 202,200 75,200 46,549 153,244 Southern City Views, Zhongshan District 100% 338,516 507,146 43,225 43,390 131,120 Zhuhai Hotel, Zhuhai Xiangzhou 100% 109,917 143,820 59,720 19,620 143,820 New City Bay, Foshan Shunde 100% 69,877 139,754 0 37,442 0 Rancho Santa Fe, Foshan Shunde 100% 127,598 231,490 54,697 57,072 54,697 Palace, Foshan Nanhai 100% 127,598 240,170 0 129,901 0 Dream Town, Foshan Chancheng 100% 386,400 776,350 16,300 93,110 495,483 The Paradiso, Foshan Nanhai 55% 75,900 184,607 36,386 46,800 59,600 The Paradiso, Changsha Furong 80% 120,150 363,369 136,500 103,694 259,675 Golden Home, Changsha Yuhua 100% 12,526 40,085 0 40,085 0 The Paradiso, Xiamen Siming 100% 55,657 166,403 0 51,762 0 Golden Rongjun, Fuzhou Jin’an 100% 166,736 347,731 62,427 21,899 277,017 Sub-total 7,346,269 10,671,390 1,245,033 1,840,149 5,936,265 Yangtze River Delta Region Jade Villa, Shanghai Minhang 49% 296,295 216,597 22,290 23,109 156,353 Floral City, Shanghai Minhang 100% 140,678 207,773 37,352 55,833 37,352 New City Garden, Minhang Shanghai 51% 287,741 472,125 156,307 0 472,125 Wuzhong Road Project, Minhang Shanghai 100% 61,724 145,065 145,065 0 145,065 Qibao 53#, Shanghai Minhang 100% 49,294 219,848 24,500 0 219,848 Charming Garden, Songjiang Shanghai 49% 366,465 312,931 0 109,614 19,189 Everest Town, Shanghai Pudong 90% 238,920 321,275 0 31,455 0 Wujiefang, Shanghai Pudong 99.8% 121,463 129,242 129,242 0 129,242 48 Qijiefang, Shanghai Pudong 99.8% 83,854 142,612 142,612 0 142,613 Jiyang Road, Shanghai Pudong 99.8% 16,000 16,500 16,500 0 16,500 Huacao 213, Shanghai Minhang 100% 172,668 295,700 0 17,365 0 Wonderland, Shanghai Baoshan 100% 383,576 471,700 0 0 13,551 Luodian Project, Shanghai Baoshan 100% 231,753 254,356 0 0 168,084 Blue Mountain Town, Shanghai Pudong 100% 433,180 209,171 36,480 15,580 59,583 Aureate City, Shanghai Pudong 50% 405,627 809,929 91,641 114,500 638,882 Tongshan Street Pudong Project, Shanghai 75% 90,645 224,408 41,100 0 224,408 Bingjiang Project, Pudong Shanghai 25% 38,753 103,132 0 0 103,132 Zhaohang Jingyuan, Qingpu Shanghai 55% 77,804 79,523 47,437 0 79,523 North Part of Wonderland, Nanchang Gaoxin 50% 374,335 444,893 15,000 15,000 15,000 Qingshan Lake, Nanchang Qingshanhu 50% 97,123 135,181 56,800 14,605 124,232 Jinyudixiang, Nanjing Jianye 100% 48,938 97,155 0 97,155 0 Anping Street, Nanjing Baixia 100% 27,325 26,790 26,790 0 26,790 Stratford, Nanjing Xiaguan 100% 27,116 44,147 0 32,567 0 The Paradiso, Nanjing Jiangning 70% 272,298 544,540 0 0 424,027 Aureate City, Nanjing Yuhua 70% 42,318 84,092 71,806 84,092 71,806 Nimble Bay Garden, Industrial Suzhou District 70% 384,042 821,664 19,655 16,224 253,816 Industrial Ben’an Project, Suzhou District 51% 155,673 133,506 11,405 17,258 23,019 Golden Home, Suzhou Canglang 55% 134,771 242,588 0 132,037 0 Changfeng School Project, Suzhou Canglang 49% 48,714 48,727 0 0 48,727 Golf, Kunshan Bacheng 85% 433,916 328,678 15,398 0 328,678 Eastern Impression, Changjiang Wuxi Road North 70% 81,664 214,817 0 62,365 0 Glamorous City, Wuxi Binghu 60% 960,000 1,336,620 69,260 112,590 683,131 Golden Home, Wuxi New District 55% 122,206 293,577 53,554 0 293,577 The Paradiso, Wuxi Binghu 55% 154,468 386,250 57,755 0 306,011 Golden Dixiang, Industrial Suzhou District 51% 47,177 118,099 0 0 107,655 Glamorous City, Zhenjiang Runzhou 100% 834,900 915,450 77,275 89,169 724,185 Liangzhu New Town, Hangzhou Yuhang 100% 3,354,214 2,309,282 64,000 218,128 1,478,451 Aureate city, Hangzhou Shangcheng 60% 3,584 13,593 0 13,593 0 Glamorous City, Hangzhou Jianggan 100% 84,438 190,104 0 89,391 0 West Spring Butterfly Garden, Hangzhou Xihu 51% 155,838 353,320 56,211 112,404 241,852 Golden Home, Fuyang 55% 55,576 111,159 0 0 0 49 Hangzhou Spring Bay Project, Fuyang Hangzhou 100% 499,483 208,981 12,000 52,113 157,664 Golden Mingjun, Hefei Shushan 50% 107,326 387,447 3,800 0 326,746 Jianghuai Project, Shushan Hefei 50% 115,714 412,355 0 0 412,355 Golden Shui’an, Ningbo Qinzhou 100% 190,369 313,602 61,300 109,363 61,300 Aureate City, Ningbo Qinzhou 75% 18,500 49,948 0 0 0 Sub-total 12,328,467 15,198,452 1,562,535 1,635,510 8,734,471 Bohai-Rim region Holiday Town, Beijing Fengtai 50% 224,289 413,304 0 99,570 96,600 Wonderland, Beijing Shunyi 100% 195,817 304,817 18,000 68,344 18,000 Aureate City, Beijing Chaoyang 100% 55,885 141,205 119,220 0 141,205 Hongshi Paint Factory Project, Beijing Fengtai 100% 59,800 184,502 0 138,717 34,443 The Dream Town, Beijing Changping 49% 178,908 543,461 0 167,117 376,344 No.5 Parkfront Boutique Apartment, Beijing Chaoyang 60% 37,917 97,044 0 7,814 0 Waterfront, Tianjin Dongli 100% 2,708,886 1,910,211 15,000 172,840 1,518,466 Holiday Town ,Tianjin Xiqing 55% 228,541 296,382 0 58,832 0 Development The Paradiso, Tianjin District 96% 60,200 283,684 0 283,684 0 Holiday Dew Garden, Xiqing Tianjin 100% 229,300 343,101 100,798 59,907 283,194 Glamorous City, Dongli Tianjin 100% 176,773 258,579 14,000 75,795 164,437 Jin’ao International, Xiqing Tianjin 100% 58,577 162,566 32,000 0 162,566 Development Binhai Modern, Tianjin District 100% 6,538 40,312 0 0 40,312 Development Binhai Eastern District District 100% 32,270 51,650 0 0 51,650 Everest Town, Hunnan New Shenyang District 100% 52,659 119,260 0 48,799 41,000 Rancho Santa Fe, Shenyang Dongling 100% 344,365 111,539 0 31,003 12,330 New Elm Mansion, Hunnan New Shenyang District 100% 182,139 289,647 0 48,638 57,464 Glamorous City, Shenyang Yuhong 100% 156,817 297,026 4,407 142,044 80,874 Dream Town, Shenyang Heping 49% 362,282 895,175 48,389 174,583 420,171 Golden Home, Anshan Tiedong 100% 48,874 97,969 0 40,510 0 Dream Town, Anshan Gaoxin 100% 167,664 366,861 20,554 75,539 291,322 The paradiso, Hunnan New Shenyang District 100% 226,356 565,000 0 57,513 439,917 50 Ravine Village, Dalian Ganjingzi 55% 363,716 380,922 0 67,576 151,921 Glamorous City, Dalian Ganjingzi 5% 195,526 404,240 84,893 33,847 370,393 City Garden, Dalian Shahekou 100% 28,580 33,942 33,942 Economic Yangpu Garden, Development Changchun District 100% 89,678 208,128 6,968 98,069 110,059 Jiangyue Tanxi Villa, Development Changchun District 100% 75,000 48,435 4,034 8,646 29,575 Glamorous City, Qingdao Chengyang 80% 200,289 355,686 0 29,186 104,906 Wonderland, Qingdao Jimo 55% 150,753 241,205 30,042 36,291 203,792 Aureate City, Qingdao Sifang 60% 61,873 180,000 0 39,163 81,110 Sub-total 6,960,272 9,625,854 498,305 2,064,027 5,315,992 Others City Garden, Chengdu Jingjiang 100% 322,196 479,627 0 0 0 Glamorous City, Chengdu Chenghua 60% 308,501 748,216 144,123 101,049 169,830 The Paradiso, Chengdu Chenghua 100% 56,293 293,700 0 234,410 0 Twin Riveside, Chengdu Xindu 100% 267,347 360,400 29,116 38,787 72,306 Jinyu Xiling, Chengdu Jinniu 75% 79,331 359,031 0 69,522 0 Golden Lingyu, Chengdu Qingyang 100% 49,628 297,980 0 0 297,980 King Metropolis, Chengdu Jingjiang 70% 52,895 198,576 30,000 0 198,576 Golden Hairong, Wuhou Chengdu 49% 54,970 222,793 18,686 0 181,921 Haiyue Huicheng, Shuangliu Chengdu 100% 104,381 521,698 0 0 521,698 Glamorous City, Wuhan Wuchang 100% 218,340 405,457 57,105 81,666 216,356 Golden Home, Wuhan Jianghan 100% 23,851 149,618 0 61,812 0 The Peninsula of Wonderland, Wuhan Dongxi Lake 100% 201,800 253,361 0 9,188 0 Aureate City, Wuhan Jianghan 55% 12,022 36,066 36,066 0 36,066 Golf City Garden, Wuhan Dongxi Lake 49% 135,620 393,858 38,813 23,384 219,921 Caimao Street Project, Wuchang Wuhan 55% 59,790 191,300 24,629 0 191,300 Goldern Junjing, Jianghan Wuhan 90% 65,901 299,337 39,150 0 299,337 New City, Xi’an Yanta 51% 41,765 260,735 71,280 0 71,280 Yu Garden, Chongqing Yubei 51% 229,579 343,841 104,302 26,208 343,841 Sub-total 2,284,207 5,815,593 593,270 646,027 2,820,411 Total 28,919,215 41,311,288 3,899,142 6,185,713 22,807,139 Datansha Project Liwan 100% 38,111 135,689 135,689 0 135,689 Total 28,635,130 40,967,350 4,034,831 6,185,713 22,942,828 51 Special Remarks on Risk Factors: The schedule for the commencement and completion of the above-mentioned projects may be adjusted due to the following factors: a) There may be significant changes in the macro economy and the property market or changes in the sale of an individual project; b) Approval requirements may be tightened by new rules and regulations such that the progress of application for permits will be slowed down, thereby affecting the schedule of project development; c) Unfavourable weather conditions may delay the progress of project development and affect the schedule for completion; d) Other significant event may affect the contruction progress which is difficult to estimate. 7. Fair value measurement and the holding of financial assets and financial liabilities in foreign currency Fair value measurement: Unit:RMB ’000 Item Balance at Changes of Accumulated Provision Disposal Balance at the fair value changes of fair provided during the the end of beginning during the value booked during the period the period of the period into equity period period (1) (2) (3) (4) (5) (6) (7) Financial assets Including:1.financial assets measured by fair value, and which changes accounted to the 2 profit and loss during the period - - - - - - Including: derivative financial assets - - - - - - 2.Available- for – sale financial assets 488,844.11 - -109,102.03 - -212,324.19 167,417.89 Sub-total of financial assets 488,844.11 - -109,102.03 - -212,324.19 167,417.89 Financial liabilities 20,957.11 -19,262.23 1,694.88 Investment property - - - - - Biological assets for producing - - - - - 3 Others - - - - - Total - -19,262.23 -109,102.03 - -212,324.19 - Holding of financial assets and financial liabilities in foreign currency Item Balance at Changes of Accumulated Provision Balance the fair value changes of fair provided at the beginning during the value booked into during the end of of the period equity period the period period (1) (2) (3) (4) (5) (6) Financial Assets Including: 1. financial assets measured by fair value, and which changes accounted to the profit and loss during the period 2 Including: derivative financial assets 2.Loans and amount receivables 3 3.Available-for-sale financial assets 52 4.Hold to maturity investment 3 Sub-total of financial assets Financial Liabilities 20,957.11 -19,262.23 1,694.88 Most of the items measured by fair value are legal person shares that have been held by the Company for a long time and with a low value and are now being gradually disposed of. With reference to the control procedure for major investment projects, and following a review by the relevant professional department, the Company’s management reviewed and approved, within the scope of authority as conferred by the Board. 8. Work Report of the Board of Directors (1) The Board held a total of four board meetings during 2008 A. On 19 March 2008, the 13th Meeting of the 14th Board was held to consider and approve the following resolutions: the resolution regarding the appropriation and write-off of the provision for diminution in asset value for the year 2007; the resolution regarding the recognition of investment properties for the year 2007 and the granting of general mandate; Auditor’s Report for the year 2007; the proposal on profit appropriation and dividend distribution and the transfer of capital surplus reserve to share capital for the year 2007; the resolution regarding the additional appropriation for 2007 incentive fund under Phase One of the Restricted Stock Incentive Plan; the internal control self-assessment report for the year 2007; the resolution regarding the appointment of auditors for the year 2008; President’s work highlights for the year 2008; the 2007 annual report and its summary; the resolution regarding the adjustment to the remuneration of the directors and members of the Supervisory Committee. The announcement of the relevant resolutions was published in China Securities Journal, Securities Times, Shanghai Securities News and The Standard of Hong Kong respectively on 21 March 2008. B. On 23 April 2008, the First Meeting of the 15th Board was held. Mr Wang Shi was elected as Chairman of the Board, and Mr Song Lin was elected as Deputy Chairman of the Board; Independent Director David Li Ka Fai, Director Jiang Wei, and Independent Director Qi Daqing were elected as members of the audit committee of the Board, Independent Director Charles Li, Director Jiang Wei, and Director Shirley L. Xiao were elected as members of the investment and decision-making committee of the Board, and Independent Director Qi Daqing, Independent Director Charles Li, and Director Sun Jianyi were elected as members of remuneration and nomination committee of the Board. The meeting also considered and approved the amendments to “Implementation details of the Audit Committee” and the 2008 first quarterly report and financial statements. The announcement of the relevant resolutions was published in China Securities Journal, Securities Times, Shanghai Securities News and The Standard of Hong Kong respectively on 25 April 2008. C. On 1 August 2008, the Second Meeting of the 15th Board was held to consider and approve the following resolutions: the 2008 interim report, financial statements and the summary of the interim report; the resolution regarding the proposals of no profit appropriation or transfer of surplus reserve to share capital for the 2008 interim period; the “Independent Directors System”; the amendments to the “Administrative Measures on Information Disclosure”; and the report on no capital used for non-operation purpose by major shareholder or its connected parties. The announcement of the relevant resolutions was published in China Securities Journal, Securities Times, Shanghai Securities News and The Standard of Hong Kong respectively on 5 August 2008. D. On 24 October 2008, the Third Meeting of the 15th Board was held to consider and approve the third quarterly report and financial statements for the year 2008. The announcement of the relevant resolution was 53 published in China Securities Journal, Securities Times, Shanghai Securities News and The Standard of Hong Kong respectively on 28 October 2008. (2)In 2008, the Board had voted by correspondence for 15 times: A. On 25 January 2008, the resolution regarding the provision of guarantee to the loan application by Wuhan Vanke Tiancheng Real Estate Co., Ltd was submitted for the Board’s approval through voting by correspondence. B. On 28 January 2008, the resolution regarding the provision of guarantee to the land transfer involved in the Tianyin Jinsha project was submitted for the Board’s approval through voting by correspondence. C. On 18 February 2008, the resolution regarding the use of part of the proceeds raised for special projects to temporarily strengthen working capital was submitted for the Board’s approval through voting by correspondence. D. On 26 February 2008, the resolution regarding the acquisition of Shenyang Yeqiao project was submitted for the Board’s approval through voting by correspondence. E. On 29 February 2008, the resolution regarding the change in the use of the outstanding balance of the proceeds from “Vanke CB2” for the Shanghai Qibao 53＃Project was submitted for the Board’s approval through voting by correspondence. F. On 21 March 2008, the resolution regarding the adjustment of the shareholding structure of Dongguan Vanke Property Company Limited was submitted for the Board’s approval through voting by correspondence. G. On 28 March 2008, the resolutions regarding the election of a new Board of Directors and the holding of the 2007 Annual General Meeting were submitted for the Board’s approval through voting by correspondence. H. On 19 May 2008, the resolutions regarding the participation in resettlement and reconstruction works in the affected area following the Sichuan earthquake and the holding of the First Special General Meeting of 2008 were submitted for the Board’s approval through voting by correspondence. I. On 26 May 2008, the resolution regarding the provision of guarantee to Shenzhen Yili Real Estate Development Co., Limited’s bank loan was submitted for the Board’s approval through voting by correspondence. J. On 1 July 2008, the resolution regarding the provision of guarantee to the loan application by Wuxi Vanke Real Estate Co., Ltd was submitted for the Board’s approval through voting by correspondence.. K. On 18 July 2008, the resolution regarding the adjustment of corporate governance initiatives was submitted for the Board’s approval through voting by correspondence. L. On 29 July 2008, the resolution regarding the transfer of incentive stock to the personal accounts of the beneficiaries of the 2006 Restricted Stock Incentive Plan was submitted for the Board’s approval through voting by correspondence. 54 M. On 31 July 2008, the resolution regarding the provision of guarantee to the loan application by Tianjin Xinghai Real Estate Co., Ltd was submitted for the Board’s approval through voting by correspondence.. N. On 26 September 2008, the resolution regarding the transfer of equity interests of Beijing Wanxin Investment Development Company Limited was submitted for the Board’s approval through voting by correspondence.. O. On 4 December 2008, the resolution regarding the provision of guarantee to the loan application by Fuyang Vanke Real Estate Development Co., Ltd was submitted for the Board’s approval through voting by correspondence. The progress and important facts of the relevant issues were disclosed pursuant to requirements in China Securities Journal, Securities Times, Shanghai Securities News and The Standard of Hong Kong on 28 February, 18 March, 3 April, 21 May, 5 June, 7 July, 23 August and 13 September 2008 respectively. (3) The Board’s implementation of the resolutions approved at shareholders’ meetings A. The implementation of the proposals on dividend distribution and the transfer of capital surplus reserve to share capital for the year 2007 Following the resolutions passed at the 2007 (20th) Annual General Meeting, the Board had proceeded with the implementation of the proposals on dividend distribution and the transfer of capital surplus reserve to share capital for 2007. The dividend distribution proposal for 2007 is as follows: for every 10 existing shares held, a cash dividend of RMB1.0 (including tax; a cash dividend of RMB0.9 (after tax) for every 10 existing shares held was actually paid to individual public shareholders of A share and investment funds; B share was not subject to taxation) was paid. The proposal on the transfer of capital surplus reserve to share capital for 2007 is as follows: six shares were transferred to shareholders for every 10 shares held. The record date for A shareholders for entitlement of dividend and transfer of capital surplus reserve to share capital was 13 June 2008. The ex-rights and ex-dividends date as well as the listing date of the new shares transferred from the capital surplus reserve was 16 June 2008. The last trading date for B share was 13 June 2008 and the ex- rights and ex-dividends date was 16 June 2008. The record date for B shareholders was 18 June 2008 and the listing date of the new shares transferred from the capital surplus reserve was 19 June 2008. The exchange rate for B share’s cash dividend was HK$1 = RMB0.8967, being the median price of the exchange rate of Hong Kong dollars for Renminbi published by the People’s Bank of China on the first working day (24 April 2008) after the approval of the dividend distribution proposal at the Company’s 2007 Annual General Meeting. B. Issue of corporate bonds The First Special General Meeting of 2007 approved the resolution regarding the issue of corporate bonds. The Company had submitted the application for issue of the corporate bonds to the China Securities Regulatory Commission (“CSRC”), in accordance with the general meeting. On 26 August 2008, the application obtained the approval from CSRC. On 2 September, the Company announced the public issue of corporate bonds. The corporate bonds were classified into secured bonds and unsecured bonds, in which both bore a fixed interest rate with a 5-year maturity. For unsecured bonds, the issuer had the right to raise the coupon rate, while investors had the right to resell their bonds. According to the feedback on the price, the coupon rate of the Company’s secured bonds was 5.50%, and that of unsecured bonds was 7.00%. On 9 September, the issue was completed, and the final size of the issue of secured bonds was RMB3 billion, and that of unsecured bonds was RMB2.9 billion. On 18 September, the issued corporate bonds commenced trading on the Shenzhen Stock Exchange. 55 C. The use of the corporate citizenship fund for specific projects development During the year under review, the Company continued to use its corporate citizenship fund for specific projects development in the construction of the “Wanhui Building” project, a prototype located in Guangzhou for residential housing target at the low to middle income family group, sponsorship for the fundamental education on housing prefabrication and the first donation to Wenchuan, Sichuan after earthquake. After Wenchuan was hit hard by the earthquake, the Company, as authorised by the Board, promptly donated RMB2.2 million; among which, RMB2 million was donated to Red Cross Society of China for the redevelopment of the Liubaxiang Primary School and Xingmaxiang Clinic at Nanjiangxiang, Bazhong City, Sichuan, and RMB0.2 million was donated to China Foundation for Poverty Alleviation, along with the donations from Society Entrepreneur Ecology and Organising Committee of China Entrepreneurs Forum for the redevelopment of Yuchengqu Zhonglizhen Lianhe Primary School and Mingshanxian Mojia Primary School at Ya’an City, Sichuan. The Company also joined hands with non-governmental organisations on issues including environmental protection, combating poverty, funding for education as well as disaster relief. In particular, “A little bag makes a big difference” campaign, which calls for the use of environmental friendly bags, was named the “Most Innovative Internet Charity Campaign” from sina.com. Currently, the “Wan-hui building” project was ready for occupation and gained the approval of Guangdong Construction Department for being “A pilot housing project funded by Guangdong enterprise for lease to low income group”. In the future, the Company will continue to explore solutions to residential housing for low to middle income family group, as well as to promote the building of a harmonious society, environmental protection, other charity activities and donations, in order to enhance corporate citizenship. D. Resettlement and reconstruction works in the affected area following the Sichuan earthquake Following the resolutions passed at the First Special General Meeting of 2008, the Company contributed an accumulative amount of RMB67.50 million of which RMB46.61 million was paid in 2008 in the resettlement and reconstruction works in the earthquake-stricken area, which included the donations of RMB47.19 million in 2008 in the construction of Zundao School (Phase I), Zundao Hospital and Zundao Community Centre in Zundaozhen, Mianzhu, and Dujiangyan of Xiangge Citiy Community Centre. Of RMB47.19 million, RMB26.3 million had been paid. The donations of RMB16 million and RMB2 million were contributed to Shenzhen Charity Organisation and Yantian Branch of Shenzhen Charity Organisation for the reconstruction works in the disaster areas. The amount involved in material procurement, logistics arrangement, rental on technical machines, construction of temporary houses and vehicles donation after the earthquake as well as community reconstruction was RMB2.31 million. On 31 December, the main school building and hospital complex located in Zundaozhen, Mianzhu City, Sichuan, which were wholly funded by the Company, were dedicated and were among the first permanent public buildings funded by enterprises after the earthquake. (4)Specialised Committees’ Performance of Duties The audit committee, the remuneration and nomination committee, as well as the investment and decision- making committee, had dutifully performed their duties, in accordance with the “Code of corporate governance for listed companies”, “Articles of Association”, and “Rules Governing the Procedures of Board Meetings” and the responsibilities and obligations as stipulated in the implementation details of the different specialised committees. A. Audit committee’s performance of duties During the period under review, the audit committee held six audit committee meetings and communication meetings. The audit committee considered the following issues: the periodical financial reports, opinions on the management of audit firm, provision for diminution in value, guarantee issues, the appointment of the 56 person-in-charge of internal audit department, establishment and development of an internal control system, etc. The audit committee regularly communicated with auditors. Since commencing its audit duties in 2008, the audit committee actively worked with the auditors regarding the arrangement of the audit work. Since the end of the year under review, the audit committee held two more audit committee meetings and communication meetings, reviewed the financial reports and provided feedback, and supervised the auditors to follow the audit schedule in order to ensure the audit could be completed on time. It also considered and approved the appointment of auditors and the audit fee. The audit committee concluded the audit performed by KPMG Huazhen Certified Public Accountants in 2008 as follows: According to the requirements of the Document No. 48 (2008) issued by China Securities Regulatory Commission, the following conclusions have been made regarding the audit performed by KPMG Huazhen Certified Public Accountants (“KPMG”): 1. Preparation before auditing i. Determinination of audit schedule It took four months from pre-auditing, which commenced at the beginning of November 2008, up till the completion of preliminary auditing for the 2008 audit. Details of the work schedule are as follows: 1) November to December 2008: Pre-audit – to perform pre-audit of new acquisitions and new markets in 2008 and selected regions based on their importance; 2） 7 January 2009: Started performing their audit in China Vanke’s office. On 5 March, the first draft of the 2008 Auditor’s Report was presented to the audit committee for review; and final draft of the published version of the Auditor’s Report was presented on 6 March. ii. Review of not-yet audited financial statements Before the auditors came in, the audit committee had reviewed, with due diligence, the financial statements prepared by the Company and provided their opinions in writing. 2. Audit process Starting from 7 January 2009, KPMG sent five different teams (for Shenzhen, Shanghai, Hong Kong, other areas and the Company as a whole) to perform audit for the Company and its subsidiaries. During the auditing process, the audit committee supervised and made written requests to requested KPMG to arrange its audit work according to the audit work schedule, in order to ensure that the audit completed on time. On 5 March 2009, KPMG submitted to the audit committee the finalised 2008 Auditor’s Report for 2008 annual report and special remarks on “The Company’s Internal Control Self-Assessment Report (2008) by the Board of Directors of China Vanke”. On 6 March 2009, the Board meeting approved this item and the on-site audit performed by KPMG for the Company’s 2008 audit completed. 3. Audit results KPMG has issued its unqualified opinion for the 2008 Auditor’s Report and special remarks on “The Company’s Internal Control Self-Assessment Report (2008) by the Board of Directors of China Vanke”. The audit committee is of the opinion that the audit performance of KPMG on the Company’s 2008 financial statements is satisfactory. The audit committee resolved to propose to the Board for approval the re-appointment of KPMG Huazhen Certified Public Accountants to audit the Company’s 2009 financial statements according to the PRC and international accounting standards, and to present the internal control audit report according to the requirements of the regulatory bodies. B. Remuneration and nomination committee’s performance of duties During the year under review, the remuneration and nomination committee convened two specialised committee meetings and communication meetings, and voted on one resolution by correspondence. The remuneration and nomination committee had also discussed and reviewed the following issues: the Company annual appraisal, remunerations of directors, members of the Supervisory Committee as well as senior management, and the implementation of the “Restricted Stock Incentive Plan”, etc. 57 C. Investment and decision-making committee’s performance of duties During the year under review, the investment and decision-making committee convened one meeting and considered and voted on four resolutions by correspondence. The investment and decision-making committee discussed those investment issues which required consideration and approval by the Board. The committee also examined the scope of authority to approve certain issues. The Company’s major investment issues would be only submitted to the Board for consideration after they have been considered and approved by the investment and decision-making committee. 9．Profit Appropriation and Dividend Distribution Proposal In accordance with the “Accounting Standard for Business Enterprises 2006”, cost method is applied to calculate the Company’s investment in its subsidiaries. Accordingly, there will be a discrepancy between the profit of the Company and the Group’s consolidated profit. In accordance with the requirements of the Company Law, the profit appropriation should be made from the Company. The Company’s profit appropriation in 2008 was based on the Company’s profit available for appropriation. According to PRC Accounting Standards, details on the profit available for appropriation of the Group and the Company in 2008 are as follows: Unit: RMB The Group The Company Profit available for appropriation after 7,370,792,808.42 1,803,028,317.18 taxation Include: Net profit for 2008 4,033,170,027.89 1,582,019,762.35 Profit available for appropriation at the 4,032,906,217.68 916,291,991.98 beginning of the year Allocation of dividend for 2007 (687,200,638.70) (687,200,638.70) According to the relevant rules and requirements of the Company’s Articles of Association, and considering shareholders’ interests and the Company’s development requirements in the long run, the Board of the Directors submitted to the shareholders meeting the following profit appropriation proposal for the year 2008: 1. to appropriate 10 per cent of the net profit of the Company to statutory surplus reserve; 2. to appropriate 65 per cent of the net profit of the Company to discretionary surplus reserve; 3. to appropriate 25 per cent of the net profit of the Company and the unappropriated profit of last year for dividend fund; 4. the remaining unappropriated profit will be brought forward to the following year. The appropriation of the profit available for appropriation for the year 2008 is as follows: Unit: RMB As a percentage of As a percentage of the Company’s The Company the Company’s net consolidated net profit for the year profit for the year Net profit of 2008 1,582,019,762.35 100% 39.23% Transfer to statutaory surplus 158,201,976.23 10% 3.92% reserve Transfer to discretionary surplus 1,028,312,845.53 65% 25.50% reserve Transfer to dividend distribution 395,504,940.59 25% 9.81% fund Profit available for appropriation at 221,008,554.83 the beginning of the year - - Distribution of cash dividend for 549,760,510.90 34.75% 13.63% 2008 Retained profit for appropriation for 66,752,984.52 the following financial year - - 58 The Company’s distribution of cash dividends for the past three years: Unit: RMB As a percentage As a percentage of Net profit Consolidated net of the net profit the consolidated net Cash dividend attributable to the profit attributable to attributable to Year profit attributable to (before tax) Company’s equity the Company’s equity the Company’s the Company’s shareholders shareholders equity equity shareholders shareholders 2007 687,200,638.70 1,727,621,268.51 4,844,235,494.21 39.78% 14.19% 2006 649,427,190.90 2,297,883,766.18 2,297,883,766.18 28.26% 28.26% 2005 591,747,769.65 1,364,689,853.78 1,364,689,853.78 43.36% 43.36% Dividend distribution proposal：A cash dividend of RMB0.5 (before tax) will be distributed for every 10 existing shares held. Based on the total share capital of 10,995,210,218 shares as at 31 December 2008, the total amount of cash dividends for distribution for 2008 will be RMB549,760,510.90. 10．Media for Disclosure of Information The Company has chosen China Securities Journal, Securities Times, Shanghai Securities News and an English medium in Hong Kong as media for disclosure of information. IX. Report of Supervisory Committee 2008 was full of changes and certainly a year to remember. Due to drastic changes and adjustments in the overall economy and property industry during the year, the Supervisory Committee had strengthened the Company’s internal risk control and improved its own organisational structure. With the formation of its own office, the Supervisory Committee is in a better position and is more capable of performing their duties of supervision. During the year under review, the Supervisory Committee had performed their duties with due diligence, safeguarded the interests of the Company, shareholders and staff, in accordance with the requirements of the Company Law and the Articles of Association of the Company. The major duties of the Supervisory Committee are as follows: 1. Supervisory Committee meetings and resolutions of such meetings In 2008, a total of four meetings were held by the Supervisory Committee. The details of the meetings and resolutions are as follows: （1）The 5th Meeting of the 6th Supervisory Committee was held on 19 March 2008. The meeting considered and approved the Report of the Supervisory Committee for the year 2007; considered and confirmed the Company’s 2007 Auditor’s Report; internal control self-assessment report for the year 2007; the Company’s proposals on profit appropriation, dividend distribution and the transfer of capital surplus reserve to share capital for the year 2007; the resolution regarding the appropriation and write-off of the provision for diminution in asset value for the year 2007; the Company’s 2007 annual report and its summary; the resolution regarding the appointment of auditors for the year 2008; the resolution regarding the adjustment to the remuneration of the directors and the members of the Supervisory Committee. （2）The 6th Meeting of the 6th Supervisory Committee was held on 23 April 2008. The meeting considered and confirmed the Company’s 2008 first quarterly report. （ 3） The 7th Meeting of the 6th Supervisory Committee was held on 1 August 2008. The meeting considered and confirmed the Company’s 2008 interim report, financial statements and the summary of the interim report; the resolution regarding the proposals of no profit appropriation and transfer of capital surplus 59 reserve to share capital for the 2008 interim period; considered and approved the report on no capital used for non-operation purpose by major shareholder or its connected parties. （4）The 8th Meeting of the 6th Supervisory Committee was held on 24 October 2008. The meeting considered and confirmed the Company’s 2008 Third Quarterly Report. 2. Inspection tours by the Supervisory Committee To strengthen control over internal risks in response to market changes, in 2008 the Supervisory Committee paid more site-visits to and intensified inspection of all levels of subsidiaries and projects. During the year, the Supervisory Committee conducted inspection tours to 22 front-line companies and examined 39 project sites. Through on-site investigation, individual interviews, group meetings, the Supervisory Committee had inspected and supervised various aspects including the implematation of the Company’s development strategy,, on-site management, self-regulation of management staff of front-line companies, protection of employees’ interests, implementation of “Labour Contract Law”, progress of the development of internal control system, and the reform on property. The Supervisory Committee further arranged inspection tours for certain Directors to companies in Dongguan, Nanjing, Chengdu, Shenyang, etc. During the tours, they focused on understanding these companies’ financial situation, progress of implementation of business plans, the differences between the planned and actual cost, procurement, construction schedule and sales of major projects, changes and reasons for the changes in employees, measures used to protect employees’ interests and results thereof. Through all of the above, the Supervisory Committee had a thorough knowledge of the operation and development of the Company in different cities. 3. Independent opinions of the Supervisory Committee on certain issues relating to the Company (1) Statutory compliance: During the year, the members of the Supervisory Committee attended every Board Meeting, supervised through reviewing reports and on-site inspection as well as participated in the evaluation of the development of part of the internal control system. The Supervisory Committee is of the opinion that through the intensification of internal control, the Company’s decision-making process will be further regulated and corporate governance structure will be further optimized. In 2008, the directors and management team of the Company diligently carried out their duties, and none of their acts had violated the law, regulations, the Company’s Articles of Association, nor had they prejudiced the Company’s, shareholders’ and employees’ interests. (2) Financial monitoring: During the year under review, the Supervisory Committee diligently performed its duty of monitoring the Company’s financial situation and provided opinions to each regular report. The Supervisory Committee is of the opinion that the financial report reflects a true and accurate view on the Company’s financial position and operating results. The audit opinions of the Company’s financial report from KPMG Huazhen Certified Public Accountants and KPMG Certified Public Accountants are prudent and non-biased. (3) Use of proceeds from fund raising exercises: Through reviewing financial statements, inspecting investment projects, etc, the Supervisory Committee followed and inspected the use of proceeds raised from the private placing of A shares in 2006, the subsequent offer of A shares in 2007 and the issue of corporate bonds in 2008. The Supervisory Committee is of the opinion that the actual investments in various projects were in line with the amount earmarked for use in the designated investment projects, and there had been no change in the investment projects. Regarding the use of part of the proceeds raised in 2007 for special projects to temporarily strengthen working capital and the change in the use of part of the proceeds from “Vanke CB2”, the Supervisory Committee is of the opinion that the decision-making process has complied 60 with the law and the related actions are favourable for enhancing the efficiency of the use of raised proceeds, which is in the interest of the shareholders. (4) Implementation of the Restricted Stock Incentive Plan ： After careful verification of the list of beneficiaries of the 2006 Restricted Stock Incentive Plan, the Supervisory Committee is of the opinion that the allotment policy of the Company’s 2006 Restricted Stock Incentive Plan complies with the requirements. The beneficiaries of this incentive plan have a legitimate and valid qualification. The Supervisory Committee agrees with the vesting of the 2006 Restricted Stock Incentive Plan. (5) Major asset acquisitions and disposals as well as connected transactions: In 2008, the Company did not have any major asset acquisitions and disposals, nor any connected transactions. (6) Senior management of the Company gave up their year-end bonus for 2008. The Supervisory Committee praised the Company’s senior management for voluntarily giving up their year-end bonus in response to the 2008 financial crisis, which indicated their readiness to ride out the difficult time with the shareholders. The Supervisory Committee will not swerve in the face of continued uncertainty in 2009. It will instead brave any challenges in order to live up to its values. X. Significant Events 1. Material litigation and arbitration During the year under review, the Company did not involve in any material litigation or arbitration. 2. Major acquisition and disposal of assets During the year under review, the Company did not have any major acquisition and disposal of assets. 3. Major connected transactions During the year under review, the Company did not have any major connected transactions. 4. Implementation of the Restricted Stock Incentive Plan (1) The relevant procedures and overview of the implementation of the Restricted Stock Incentive Plan Phase One (2006-2008) of the Company’s Restricted Stock Incentive Plan (“Phase One Incentive Plan”) was approved by the Company’s 14th Board in 2006 and was filed on record by CSRC without objection, and was approved at the Company’s 2005 Annual General Meeting. The basic operating mechanism of the incentive plan is as follows: the Company adopts the method of advanced appropriation plus supplementary appropriation for the incentive fund as the incentive for the beneficiaries of the incentive plan. The beneficiaries authorise the Company to appoint the Trustee, who will operate on an independent basis, to use the aforesaid incentive fund to purchase the Company’s listed A shares within a specified period and to transfer all the restricted shares to the accounts of the beneficiaries of the incentive plan upon fulfilment of conditions. Pursuant to the authorisation of the beneficiaries, the Company appointed an independent third party, Shenzhen International Trust & Investment Co., Ltd. (“Shenzhen Trust”) as the Company’s trustee for Phase One Incentive Plan. Shenzhen Trust established three independent trusts for the management of the three relatively independent incentive plans for the year 2006, 2007 and 2008 respectively. Up till now, the Company has appropriated RMB215,463,931.52 and RMB484,423,549.42 for the 2006 incentive fund and 2007 incentive fund respectively, and pre-appropriated RMB763,905,518.41 for the 2008 incentive fund 61 according to the requirements of Phase One Incentive Plan. Shenzhen Trust has already used all the money in the incentive funds to purchase the Company’s A shares. Since the Company’s net profit after deducting extraordinary gains/(losses) for the year 2008 was 15.61 per cent less than that of 2007, it did not meet the prescribed business performance objective for 2008 incentive plan, and hence the 2008 incentive plan could not be implemented. The shares bought by using the advanced appropriation for 2008 incentive fund will be sold on the market within a specified period after the issue of the announcement regarding the confirmation of the termination of the 2008 incentive plan. The proceeds from the sale of shares will be returned to the Company. (2) Appropriation for the incentive fund for the year under review under Phase One Incentive Plan During the year under review, according to the requirements of Phase One Incentive Plan and the Company’s actual operating results in 2007, the supplementary appropriation for the 2007 incentive fund was RMB243,140,599.90 and the advanced appropriation for the 2008 incentive fund was RMB763,905,518.41. According to the requirements of Phase One Incentive Plan and the Company’s actual operating results, the Company made an appropriation of RMB215,463,931.52 for the 2006 incentive fund and an advanced appropriation of RMB241,282,949.52 for the 2007 incentive fund in 2006 and 2007 respectively. For details, please refer to the Company’s 2006 and 2007 annual reports. (3) Changes in the incentive stock under Phase One Incentive Plan during the year under review All the incentive shares under Phase One Incentive Plan have been purchased by Shenzhen Trust, the independent trustee, from the secondary market using the incentive funds as authorised by the beneficiaries. On 2 June 2008, Shenzhen Trust informed the Company in writing that: the supplementary appropriation for 2007 incentive fund was used to purchase 11,533,195 China Vanke A shares from the secondary market, while the advanced appropriation for 2008 incentive fund was used to purchase 37,804,258 shares. On 16 June, the Company implemented the proposals on dividend distribution and transfer of capital surplus reserve to share capital for the year 2007. After the transfer of capital surplus reserve to share capital, the A shares of China Vanke held by 2006 incentive fund, 2007 incentive fund and 2008 incentive fund amounted to 61,022,670 shares, 46,020,261 shares and 60,486,813 shares respectively. Meanwhile, the 2006 incentive fund, 2007 incentive fund and 2008 incentive fund under Phase One Incentive Plan were entitled to dividends of RMB3,813,916.90, RMB2,876,266.30 and RMB3,780,425.80 respectively. According to the notice from Shenzhen Trust on 4 July 2008, the dividends had been used to purchase China Vanke A shares from the secondary market. The additional shares purchased using the dividends for 2006 incentive fund, 2007 incentive fund, and the pre-appropriated 2008 incentive fund were 424,700 shares, 321,500 shares and 439,007 shares. Since the business performance targets and stock price conditions for 2006 incentive plan under Phase One Incentive Plan have been met, the 61,447,370 A shares of China Vanke held by 2006 incentive fund have been transferred to the share accounts of the beneficiaries of the incentive plan according to the plan. As at the end of 2008, the A shares of China Vanke held by 2007 incentive fund and pre-appropriated 2008 incentive fund amounted to 46,341,761 shares and 60,925,820 shares. (4) Appraisal of beneficiaries and adjustment to the qualification of a beneficiary 62 According to the requirements of the Phase One Incentive Plan, the allotment policy of Phase One Incentive Plan is determined based on the combination of responsibilities, rights and obligations, including the duties and performance of the beneficiaries. The Company has established a complete performance appraisal system based on the balanced scorecard, and the system works well. The review covers different aspects, including financial, customer, internal procedure, and staff training and development. The Company has established objective benchmarks to measure the performance in each of the categories. The Company’s Phase One Incentive Plan has determined the scope of qualified beneficiaries. There had not been any change in the scope of qualified beneficiaries during the year under review. （5）Implementation of the 2006 incentive plan According to the Company’s 2006 audit report (KPMG-[C] (2007) AR NO.0041) issued by KPMG Huazhen Certified Public Accountants, the Company’s net profit after deducting extraordinary gains/(losses) for 2006 increased by 54.68 per cent from that of 2005, while fully diluted return on net assets was 13.89 per cent and fully diluted earnings per share rose by 31.77 per cent, which met the business performance targets of 2006 incentive plan. Taking 1 January 2006 as the base day, the average closing price of China Vanke A shares in 2006 after ex- right price backward adjustment was RMB7.10, while the average closing price of China Vanke A shares in 2007 after ex-right price backward adjustment was RMB33.81, thereby achieving the share price conditions set for the 2006 incentive plan. After the Board’s consideration and confirmation, the conditions for transferring shares into the share accounts of beneficiaries of the 2006 incentive plan had been met. Since the business performance targets and stock price conditions of the 2006 incentive plan had been met, while the qualifications of different groups of beneficiaries had been confirmed by the President and the Board, filed to the remuneration and nomination committee and verified by the Supervisory Committee, the incentive shares of the 2006 incentive plan were transferred to the share accounts of the beneficiaries on 11 September 2008. The actual number of shares transferred to the share accounts of the beneficiaries was 54,609,969 shares. The remaining 6,837,674 China Vanke A Shares had been sold on the secondary market in accordance with the relevant requirements. The proceeds from the sale of the shares will be used to pay the personal tax and other expenses of the beneficiaries of the incentive plan. The remaining balance after paying the relevant tax and expenses will be returned to the beneficiaries by way of cash. The implementation of the 2006 incentive plan had been completed. (6) Progress of 2007 Incentive Plan The Company has already appropriated the 2007 incentive fund of RMB484,423,549.42, in accordance with the requirements of Phase One Restricted Stock Incentive Plan. As at the end of the year under review, a total of 46,341,761 A shares of China Vanke were held by the 2007 incentive plan. According to the Company’s 2007 Auditors’ Report (KPMG-C (2008) AR NO. 0108) issued by KPMG Huazhen Certified Public Accountants, the Company’s net profit after deducting extraordinary gains/or loss for 2007 was RMB4,790,833,311.17, representing an increase of 116.67% from that of 2006, and fully diluted return on net assets was 16.36%, and fully diluted earnings per share increased by 106.75%. These results met the business performance targets of 2007 Incentive Plan. Taking 1 January 2007 as the base day, the average closing price of China Vanke A shares in 2007 after ex- right price backward adjustment was RMB33.66, while the average closing price of China Vanke A shares in 63 2008 after ex-right price backward adjustment was RMB25.79, which did not meet the share price conditions set for the 2007 incentive plan. Pursuant to the requirements of Phase One Restricted Stock Incentive Plan, the 2007 Incentive Plan has entered the supplementary vesting period. At the beginning of 2010, if the average closing price of China Vanke A shares in 2009 after ex-right price backward adjustment is higher than the average closing price of China Vanke A shares in 2007 after ex-right price backward adjustment, the shares held by the 2007 incentive plan can be transferred to the beneficiaries’ accounts. However, if the share price conditions could not be met, the 2007 Incentive Plan has to be terminated, and the shares held by the 2007 incentive plan will be sold on the market within a specified period after the issue of the announcement regarding the confirmation of the termination of the 2007 incentive plan. The proceeds from the sale of shares will be returned to the Company. （7）Accounting treatment of Phase One Incentive Plan and its impact on the financial situation and operating results Pursuant to the requirements of Provision No. 15 (3) of the Phase One Incentive Plan, the incentive plan will appropriate for an incentive fund in accordance with the relevant requirements of “Issue No. 2 Q&A regarding the regulation of information disclosure of public listed companies – Appropriation of incentive fund for mid-level and senior management” (Zhengjian Kuaiji Zi [2001] No. 15), and recognise it as cost. During the implementation of the incentive plan, the Ministry of Finance issued the “Notice regarding the publication of the details of the 38 standards including the ‘Accounting Standards for Business Enterprises No.1 – Inventory’” (Caikuai [2006] Document No. 3). Pursuant to the requirements of the notice, accounting treatment has been made to the Company’s Phase One Incentive Plan in accordance with the “Accounting Standards for Business Enterprises No. 11 – Share-based payment” since 2006. In accordance with the relevant accounting standards, the Phase One Incentive Plan is an arrangement of share-based payment through equity settlement, and beneficiary’s services are recognised as cost basing on the fair value of the equity instrument and increase the capital reserve at the same time. At the time of incentive fund appropriation, deduct “Bank deposit” and recognise in the “capital reserve —stock incentive trust fund”, as the deduction of capital reserve; if termination of the incentive plan is confirmed, the proceeds from the sale of shares will be returned to the Company, and increase “Bank deposit” and increase capital reserve. . The Phase One Incentive Plan uses the Monte Carlo Simulation method to assess the fair value of incentive plan of each year. The fundamental assumption of the assessment is that the change in stock price follows the Geometric Brownian Motion, Δs = μΔt + σε Δt , of which: s is simulated stock price, μ is the expected return of the stock, σ is the volatility of stock price, ε is random sample from standard normal distribution. s In the simulation, time step Δt was set at 0.01 year, and 10,000 future stock price tracks were created to calculate the average closing price of comparative years, in order to determine the fair value of the incentive plan of different years. Pursuant to the assessment report of the Phase One Incentive Plan, the fair value of 2006 incentive fund and 2007 incentive fund was RMB218,690,000.00 (assessment parameters: 2006=5.97， 2006= 0.35， 2006=0.30) and RMB470,000,000.00 (assessment parameters: 2007=6.81， 2007= 0.5106， 2007= 0.6232) respectively. The incentive fund for every year is amortised using the straight line method during the waiting period of each incentive plan. Of the amortisation amount of 2006 incentive fund, RMB80,569,999.99 was recognised as administrative expenses in the year 2006 and RMB138,120,000.00 was recognised as administrative 64 expenses in the year 2007. The 2006 incentive fund had been fully amortised. Of the amortisation amount of 2007 incentive fund, RMB235,000,000.00 was recognised as administrative expenses in the year 2007. A total amount of RMB373,120,000.00 from the 2006 incentive fund and 2007 incentive fund was recognised as administrative expenses in the year 2007. Of the amortisation amount of 2007 incentive fund, RMB235,000,000.00 was recognised as administrative expenses in the year 2008, and the amount was shown in the “capital reserve —stock incentive reserve”. Since the business performance targets of 2008 incentive plan have not been reached, the 2008 incentive plan cannot be implemented, and RMB763,905,518.41 of the 2008 incentive fund will not be amortised. The shares bought by this part of incentive fund will be sold on the market within a specified period after the issue of the announcement regarding the confirmation of the termination of the 2008 incentive plan. The proceeds from the sale of shares will be returned to the Company, and therefore will increase the Company's capital reserve. However, as the price at which the shares will be sold remains uncertain, the amount of increase in capital reserve in the future may differ from the amount of decrease in capital reserve in 2008 due to the advanced appropriation of 2008 incentive fund. Matters relating to this may have certain impact on the Company's capital reserve, but will not affect the Company’s profit and loss. For details of the accounting treatment for the Phase One Incentive Plan, please refer to Note 31 – Capital Reserve and Note 48 – Employee Incentive Plan to the Accounting Report in the appendix. The implementation of the Restricted Stock Incentive Plan promotes the establishment of a control mechanism between the shareholders and management team that is built upon common interests, and further optimises the Company’s corporate governance structure, helps the Company to attract and retain high- calibre talents, enhances the Company’s competitiveness, and ensures the Company’s long-term stable development. 5. Major contracts and their implementation （ 1 ） During the year under review, the Company did not put any material assets under custodial management, sub-contract or lease any assets from other companies, nor were any material assets of the Company put under custodial management, subcontracted or leased by other companies. （2）Details on the new guarantees made by the Company during the year under review are as follows: No. Guarantor Company for which Guarantee amount Remarks Guarantee Period (% of equity interest guarantee was granted held by China Vanke ) (% of equity interest held by China Vanke ) Provided a guarantee Shenyang Vanke Yongda in proportion to the Real Estate Development Company’s equity 16 April 2008 to 30 1 China Vanke Co., Ltd. Company Limited (49%) RMB49 million holding (49%) for a October 2009 (沈阳万科永达房地产开 bank loan of RMB100 发有限公司) million Provided a guarantee in proportion to the Shenyang Vanke Yongda Company’s equity 28 April 2008 to 30 2 China Vanke Co., Ltd. Real Estate Development RMB34.3 million holding (49%) for a October 2009 Company Limited (49%) bank loan of RMB70 million 65 Provided a guarantee Beijing Jinyu Vanke Real in proportion to the Beijing Vanke Estate Development Company’s equity 22 May 2008 to 31 3 Enterprises Company Company Limited (49%) RMB68.6 million holding (49%) for a January 2009 Limited (100%) (北京金隅万科房地产开 bank loan of RMB140 发有限公司) million Provided a guarantee 1 June 2008 to 30 in proportion to the April 2009 Beijing Vanke Beijing Jinyu Vanke Real Company’s equity 4 Enterprises Company Estate Development RMB45.19 million holding (49%) for a Limited (100%) Company Limited (49%) bank loan of RMB92.22 million Provided a guarantee 1 July 2008 to 31 Beijing Jinyu Vanke Real in proportion to the August 2009 Beijing Vanke Estate Development Company’s equity 5 Enterprises Company RMB9.33million Company Limited (49%) holding (49%) for a Limited (100%) bank loan of RMB19.05 million\ Provided a guarantee 1 August 2008 to 31 Beijing Jinyu Vanke Real in proportion to the August 2009 Beijing Vanke Estate Development Company’s equity 6 Enterprises Company RMB3.76 million Company Limited (49%) holding (49%) for a Limited (100%) bank loan of RMB7.68 million Provided a guarantee 1 October 2008 to 31 Beijing Jinyu Vanke Real in proportion to the August 2009 Beijing Vanke Estate Development Company’s equity 7 Enterprises Company RMB2.80million Company Limited (49%) holding (49%) for a Limited (100%) bank loan of RMB5.72 million Provided a guarantee 13 November 2008 to Beijing Jinyu Vanke Real in proportion to the 31 August 2009 Beijing Vanke Estate Development Company’s equity 8 Enterprises Company RMB9.63 million Company Limited (49%) holding (49%) for a Limited (100%) bank loan of RMB19.66 million Provided a guarantee 28 November 2008 to Beijing Jinyu Vanke Real in proportion to the 31 December 2009 Beijing Vanke Estate Development Company’s equity 9 Enterprises Company RMB56.68 million Company Limited (49%) holding (49%) for a Limited (100%) bank loan of RMB115.67 million Tianjin Binhai Modern Provided a guarantee 30 April 2008 to 29 Real Estate Co., Ltd. for a trust loan of April 2009 Tianjin Vanke Real 10 (100%) RMB100 million RMB100 million Estate Co., Ltd. (100%) (天津滨海时尚置业有限 公司) 66 Wuhan Vanke Tiancheng 22 February 2008 to Real Estate Co., Ltd. Provided a guarantee 22 January 2010 Wuhan Vanke Real 11 (55%) RMB100 million for a bank loan of Estate Co., Ltd. (100%) (武汉万科天诚房地产有 RMB100 million 限公司) Hangzhou Xihu Guarantee withdrawn Provided a counter Zhejiang Vanke Nandu International Golf Club guarantee for a bank 12 Real Estate Co., Ltd. Company Limited (0%) RMB22.36 million guarantee of (100%) (杭州西湖国际高尔夫乡 RMB22.36 million 村俱乐部有限公司) Provided a counter 9 May 2008 to 5 May guarantee in 2009 Hangzhou Wankun Co., proportion to the 13 Zhejiang Nandu Property Limited (51%) RMB12.90million Company’s equity Co., Ltd (100%)） (杭州万坤置业有限公司) holding (51%) for a bank loan of RMB25.29 million Shenzhen Yili Real Estate 1 June 2008 to 5 April Development Co., Ltd. Provided a guarantee 2009 Shenzhen Vanke Real 14 (78.4%) RMB165 million for a bank loan of Estate Co., Ltd. (100%) (深圳市易理房地产开发 RMB165 million 有限公司) Shenzhen Yili Real Estate Provided a guarantee 19 June 2008 to 5 Shenzhen Vanke Real 15 Development Co., Ltd. RMB5 million for a bank loan of April 2009 Estate Co., Ltd. (100%) (78.4%) RMB5 million Shenzhen Yili Real Estate Provided a guarantee 25 July 2008 to 5 Shenzhen Vanke Real 16 Development Co., Ltd. RMB10 million for a bank loan of April 2009 Estate Co., Ltd. (100%) (78.4%) RMB10 million China Vanke Co., Ltd. Provided guarantee in 8 July 2008 to 7 July proportion to the 2009 Wuxi Vanke Real Estate Company’s equity 17 RMB30 million Co., Ltd. (60%) holding (60%) for a loan of RMB50 million China Vanke Co., Ltd. Wuxi Vanke Real Estate Provided guarantee in 8 July 2008 to 7 Co., Ltd. (60%) proportion to the January 2010 Company’s equity 18 RMB60 million holding (60%) for a loan of RMB100 million China Vanke Co., Ltd. Wuxi Vanke Real Estate Provided guarantee in 8 July 2008 to 7 Co., Ltd. (60%) proportion to the December 2010 Company’s equity 19 RMB30 million holding (60%) for a loan of RMB50 million 67 Shenyang Vanke Shenyang Paradiso Real 12 December 2008 to Hunnan Jinyu Real Estate Development Co., Provided a guarantee 11 December 2010 20 Estate Co., Ltd. (100%) Ltd (100%) RMB300 million for a bank loan of 沈阳万科浑南金域房地 沈阳万科金域蓝湾房地 RMB300 million 产开发有限公司 产开发有限公司 Fuyang Vanke Real Estate 26 December 2008 to Development Co., Ltd Provided a guarantee 25 December 2010 21 China Vanke Co., Ltd. (100%) RMB400 million for a bank loan of 富阳万科房地产开发有 RMB400 million 限公司 China Vanke Co., Ltd. Tianjin Xinghai Real Provided guarantee in 20 August 2008 to 19 Estate Co., Ltd(55%) proportion to the August 2009 (天津兴海房地产开发有 Company’s equity 22 RMB27.50 million 限公司) holding (55%) for a loan of RMB50 million Zhejiang Vanke Nandu Fuyang Vanke Real Estate Provided a guarantee 5 September 2008 to 23 Real Estate Co., Ltd. Development Co., Ltd RMB170 million for a bank loan of 10 May 2009 (100%) (100%) RMB170 million During the year under review, the new amount of guarantees (including counter guarantees) made by the Company and its subsidiaries was RMB1,712 million, and the amount of guarantees withdrawn was RMB1,335 million. As at the end of the year under review, the outstanding amount of guarantees made by the Company was RMB2,221 million (due to changes in exchange rate, there was a slight adjustment in the outstanding amount of guarantees as at the beginning of the year), accounting for 6.96 per cent of the Company’s net assets. The outstanding amount of bank loan guarantees made by the Company and its majority-owned subsidiaries for other majority-owned subsidiaries was RMB1,807 million, the outstanding amount of bank loan guarantees made by the Company and its majority-owned subsidiaries for associated and joint venture companies was RMB414 million. The Company and its majority-owned subsidiaries did not have any outstanding amount of external guarantees. During the year under review, the Company did not provide guarantee for shareholders, beneficial controller and its connected parties, nor did it, directly or indirectly, provide guarantee for companies with an assets/liabilities ratio exceeding 70 per cent. （3）During the year under review, the Company did not have any entrustment of financial management. （4）For details on the projects acquired by the Company during the year under review, please refer to the “Project investment” of the “Use of capital not from the capital market” contained in this report. 6. Implementation of the undertakings given by the Company or shareholders holding 5% or more of the equity interests in the Company CRNC – the parent company of CRC, being the Company’s original single largest shareholder and the present single largest shareholder, gave a significant undertaking to the Company in 2001: CRNC would provide as much support to the Company as it did in the past, as long as such support was beneficial to the Company’s development, and that it would remain impartial in the event of any competition between the investment projects of the Company and that of CRNC and its subsidiaries, and in the event of any disagreements or disputes arising from horizontal competition. CRNC had fulfilled its undertaking. 68 Under the Company’s non-tradable share reform, CRC had undertaken not to trade or transfer its non- tradable shares within the 12-month period from the date on which such non-tradable shares were granted the right to list on the stock exchange. After the expiry of the 12-month period, the original non-tradable shares could be sold through trading on the stock exchange. The amount of shares to be sold shall not exceed five per cent and 10 per cent of the Company’s total issued shares during the respective periods of 12 months and 24 months. In addition, the selling price shall not be less than 120 per cent of the exercise price of the put warrant (the selling price will be adjusted during the statutory share disposal restriction period and according to the adjustment methods for the exercise price of the put warrant). CRC had strictly abided by the aforesaid undertaking. For the private placing of A shares in 2006, CRC undertook to be subject to a lock-up period of 36 months for the subscribed shares of its own accord. The related undertakings had been strictly fulfilled. 7. Interaction with investors The Company has always paid high regard to its investor relations and strives to enhance its transparency. In 2008, the Company has strengthened its interaction with investors. The Company received a number of investor visits and frequently participated in institutional investors meetings. Investors also actively participated in the Company’s activities. During the year, the Company received over 530 investors visits, participated in 60 large-scale investor forums of both domestic and international corporations. The Company also organised six investor forums, three visits to institutional investors, and three online presentations. In addition, telephone and e-mail are important means of communication used by the Company to communicate with the general investors. By being patient during the process of communication and attentive to investors’ views, disclosing information on the Company, the Company has boosted confidence with its investors. During the year under review, the Company received the “100 Companies with Best Investor Relations Management” award, the event of which was supervised by both the Shanghai Stock Exchange and Shenzhen Stock Exchange, and jointly organised by the China Investor Relations Research Centre, for the fourth consecutive year. The Company was also given the “Best Board Secretary” award. In the 4th “New Fortune Golden Board Secretary” selection, the Company’s Board Secretary was named again as the No. 1 Golden Board Secretary. Details on the Company’s investor meetings in 2008: Issues discussed Type of and Date Location Approach Classification of visitors meeting information provided United (I) Major issues Securities companies, funds, Securities 2008.1 Xiamen Face to Face Meeting discussed: investors meeting (1) The Securities companies, funds, Company’s CLSA meeting 2008.1 Hong Kong Face to Face Meeting investors daily Deutsche Bank Securities companies, funds, operations; 2008.1 Beijing Face to Face Meeting meeting investors (2)The Securities companies, funds, Company’s UBS meeting 2008.1 Shanghai Face to Face Meeting investors developmen 69 CITIC t strategies; Securities companies, funds, Securities 2008.1 Dongguan Face to Face Meeting (3)The investors meeting Company’s Securities companies, funds, opinion on the CLSA meeting 2008.3 Hong Kong Visit investors changes in the Hong Kong, industry. Annual results Shenzhen, Securities companies, funds and 2008.3 Face to Face Meeting presentation Shanghai, individual investors, etc. (II) Major Beijing information Credit Suisse Securities companies, funds, provided: 2008.4 Hong Kong Face to Face Meeting meeting investors Published JP Morgan Securities companies funds, information 2008.4 Singapore Visit meeting investors including the JP Morgan Securities companies, funds, Company’s 2008.4 Beijing Face to Face Meeting regular reports meeting investors China and Merchants Securities companies, funds, announcements. 2008.4 Shenzhen Face to Face Meeting Securities investors meeting Guotai Junan Securities companies, funds, 2008.5 Shenzhen Face to Face Meeting meeting investors Securities companies, funds, CLSA meeting 2008.5 Shanghai Face to Face Meeting investors Shenyin Securities companies, funds, Wanguo 2008.5 Wuhan Face to Face Meeting investors meeting Daiwa Securities companies, funds, Securities 2008.5 Japan Face to Face Meeting investors meeting Deutsche Bank Securities companies, funds, 2008.5 Hong Kong Face to Face Meeting meeting investors Macquarie Securities companies funds, 2008.5 Guangzhou Face to Face Meeting meeting investors CITIC Securities companies, funds, Securities 2008.6 Beijing Face to Face Meeting investors meeting Everbright Securities companies, funds, Securities 2008.6 Shanghai Face to Face Meeting investors meeting Ping An Securities companies, funds, Securities 2008.6 Shenzhen Face to Face Meeting investors meeting Haitong Securities companies, funds, Securities 2008.6 Shanghai Face to Face Meeting investors meeting Orient Securities companies, funds, Securities 2008.6 Shanghai Face to Face Meeting investors meeting 70 Essence Securities companies, funds, Securities 2008.6 Shanghai Face to Face Meeting investors meeting Guosen Securities companies, funds, Securities 2008.6 Kunming Face to Face Meeting investors meeting JP Morgan Securities companies, funds, 2008.6 Hong Kong Face to Face Meeting meeting investors China Jianyin Investment Securities companies, funds, 2008.6 Shenzhen Face to Face Meeting Securities investors meeting Securities companies, funds, CLSA meeting 2008.7 Hong Kong Face to Face Meeting investors Morgan Stanley Securities companies, funds, 2008.7 Hong Kong Face to Face Meeting meeting investors Sinolink Securities companies, funds, Securities 2008.7 Sanya Face to Face Meeting investors meeting Securities companies, funds, CICC meeting 2008.7 Shanghai Face to Face Meeting investors China Merchants Securities companies, funds, 2008.7 Shenzhen Face to Face Meeting Securities investors meeting Interim results Securities companies, funds, 2008.8 Hong Kong Face to Face Meeting presentation investors Shenzhen Interim results Securities companies, funds, 2008.8 （Beijing, Face to Face Meeting presentation investors Shanghai） JP Morgan Securities companies, funds, 2008.8 Hong Kong Face to Face Meeting meeting investors Securities companies, funds, CLSA meeting 2008.8 Hong Kong Face to Face Meeting investors China Merchants Securities companies, funds, 2008.9 Shenzhen Face to Face Meeting Securities investors meeting Securities companies, funds, CLSA meeting 2008.9 Singapore Face to Face Meeting investors Securities companies, funds, UBS meeting 2008.9 Hong Kong Face to Face Meeting investors Securities companies, funds, CLSA meeting 2008.9 Hong Kong Face to Face Meeting investors Merrill Lynch Securities companies, funds, 2008.10 Beijing Face to Face Meeting meeting investors Macquarie London、New Securities companies, funds, 2008.10 Face to Face Meeting meeting York investors Securities companies, funds, BNP meeting 2008.10 Hangzhou Face to Face Meeting investors 71 JP Morgan Securities companies, funds, 2008.10 Hong Kong Face to Face Meeting meeting investors Goldman Sachs Securities companies, funds, 2008.11 Beijing Face to Face Meeting meeting investors Credit Suisse Securities companies, funds, 2008.11 Beijing Face to Face Meeting meeting investors Industrial Securities companies, funds, Securities 2008.11 Shanghai Face to Face Meeting investors meeting Shenyin Securities companies, funds, Wanguo 2008.11 Beijing Face to Face Meeting investors meeting Changjiang Securities companies, funds, Securities 2008.11 Shanghai Face to Face Meeting investors meeting Securities companies, funds, CLSA meeting 2008.12 Hong Kong Face to Face Meeting investors CITIC Securities companies, funds, Securities 2008.12 Nanjing Face to Face Meeting investors meeting Securities companies, funds, CICC meeting 2008.12 Shanghai Face to Face Meeting investors Guosen Securities companies, funds, Securities 2008.12 Tianjin Face to Face Meeting investors meeting Guotai Junan Securities companies, funds, 2008.12 Haikou Face to Face Meeting meeting investors Sinolink Securities companies, funds, Securities 2008.12 Shanghai Face to Face Meeting investors meeting Greatwall Securities companies, funds, Securities 2008.12 Shenzhen Face to Face Meeting investors meeting China Jianyin Investment Securities companies, funds, 2008.12 Shenzhen Face to Face Meeting Securities investors meeting Essence Securities companies, funds, Securities 2008.12 Beijing Face to Face Meeting investors meeting Note: The above-mentioned meetings included one-on-one meetings, small group meetings and large group presentation. The Company received or met with investors from over 50 companies. 72 Daiwa Securities, CITI, JP Morgan, Industrial Securities, Shenyin Wanguo,Shanghai Securities, CICC, Morgan Stanley, Guosen Securities, CLSA,United Securities, Shenzhen, Goldman Sachs Gaohua, Orient Shanghai, Securities, Shinyoung Securities Beijing, Tianjin, of Korea (韩国信荣证券), Ningbo, Wuhan Changjiang Securities, Merrill During Guangzhou, Lynch, Ping An Securities, Securities the year Chengdu, Small group or one-on- Daewoo Securities, Bohai companies under Nanjing, one Securities, UBS, Credit Suisse, review Hangzhou, Deutsche Bank, Haitong Dongguan, Securities, Nanjing Securities, Dalian, Wuxi, First Shanghai Securities of Hong Changsha, Kong, Nomura Securities, Zhuhai Macquarie, Guotai Junan, Goldman Sachs, China Merchants Securities, Guangzhou Securities, Everbright Securities, CITIC Securities, BOC International , BNP, etc 73 Tiger Asia, Daiwa Asset Management (H.K.) Ltd., Kylin, Sansar Capital, Blackstone, UBS Asset Mgmt, Morgan Stanley Inv Mgmt, GIC, Bank of China Investment, Liu Yufeng, Guo Qun, Ma Jun, Zheng Yu, E Fund, Rongtong Fund, China Universal Fund, Invesco Great Wall, ICBC Credit Suisse, Harvest Fund, Yinhua Fund, Changsheng Fund, China AMC, Fortune SGAM, China Merchants Fund, Guotai Fund, Penghua Fund, China International Fund, AIG Huatai, Baoying Fund, Bank of Communications Schroder Fund, Hua An Fund, Southern Fund, Guangfa Fund, Bosera Fund, Shenzhen, Dacheng Fund, Taikang Asset, Shanghai, Cephei Investments, [Pacer Beijing, Tianjin, Investment Management, Brevan Ningbo, Wuhan, Howard、Boyer Allan、Marsico Guangzhou, Fund and other Capital Management、Joho During Chengdu, investment Capital、Threadneedle Asset the year Nanjing, Small group or one-on- companies and Management、RBS (ABN under Hangzhou, one individual Amro)、Absolute Asia、HQ review Suzhou, investors Bank (Sweden)、Norges Bank、 Dongguan, Tokyo DLIBJ (DIAM) Asset Dalian, Wuxi, Management、France Changsha, ADEMUS、Putnam Shenyang, Investments、Polygon Zhuhai Investment、Highbridge Capital Management LLC、Rovida Asset、Partner Funds、 AllianceBerstein、Standard Life Investment、Friedman, Billings and Ramsey、Soros Fund Management、Value Partners Ltd、Criterion Capital Management LLC、Ivory Capital、GE Asset Management， etc 74 8. Corporate bond and related matters The Shenzhen Branch of China Construction Bank Corporation (authorised by the headquarters) provides an unconditional and irrevocable joint liability guarantee for the full amount of the payment of principal and interests on the secured corporate bonds, 08 Vanke G1, issued by the Company. During the year under review, the guarantor continued to be profitable, with sound assets structure, and there was no significant change in its credit status. During the year under review, there was no significant change in the Company’s credit standing. As at the end of the year, the Company’s total debt ratio was 67.4 per cent, which was slightly lower than that of the third quarter when the Company had just issued its corporate bonds. The Company will pay the first year interest on its corporate bonds on 7 September 2009, and such interest payment will be funded by internal resources. Citic Securities Co., Ltd, the trustee of the Company’s corporate bonds, is of the opinion that: amid consolidation of the property industry, China Vanke, the bond issuer, has a stable operation and effective control over its level of liabilities. The Company has a good credit standing, with strong capacity to meet its financial obligation. The principle and interests on this bond issue are therefore safe. 9. Other investments 9.1 Investment of securities No. 9.2 Equity interests held in other listed companies Booked Gains/(losses) Changes in Equity Initial value as at Stock Stock Percentage of during the attributableto equity investment the end of code abbreviation shareholdings year under holders during the amount the year review year under review under review 000001 Shenzhen 11,582,347.80 0.10% 28,511,683.20 - -59,002,876.80 Development Bank Co., Ltd – A 600697 Changchun Eurasia 5,070,000.00 1.18% 27,150,769.70 - -20,687,195.46 Group Co., Ltd 600680 Shanghai Potevio 8,722,080.97 1.41% 24,133,759.46 703,904.47 -28,687,966.91 Co., Ltd. 600751 S*ST Tianjin 143,600.00 0.04% 143,600.00 - Marine Shipping Co., Ltd. 600329 Tianjin Zhongxin 306,000.00 - - 601,532.94 -723,985.98 Pharmaceutical Group Corporation Limited Total 25,824,028.77 - 79,939,812.36 1,305,437.41 -109,102,025. Note： 1. The above-mentioned equity interests are legal person shares of the Company over the years. Up till now, the S*ST Tianjin Marine Shipping Co., Ltd has not undergone share reform, and Changchun Eurasia Group Co., Ltd is still subject to a lock-up period; 75 2. During the year under review, the equity interests held in Tianjin Zhongxin Pharmaceutical Group Corporation Limited by the Company had been disposed. Gains from the disposal of the equity interests have been booked into the “investment income” for the year under review. The change in fair value of other equity interests at the end of the year under review reduced the “tradable financial assets”, and also reduced “capital reserve”. 9.3 Shareholding of non-listed financial corporations and possible listed companies No. 10. Was there any use of the Company’s funds by the controlling shareholder and other related parties for non-operation purpose? There had not been any use of the Company’s funds by the controlling shareholder and other related parties for non-operation purpose. 11. Appointment and termination of certified public accountants The 2007 Annual General Meeting resolved to confirm that KPMG Huazhen Certified Public Accountants as the Company’s auditors for the year 2008. The following table shows the details on the appointment of the certified public accountants of the Company: 2008 2007 Year of service Audited item Auditor Audit fee Auditor Audit fee The Group’s consolidated 8 years KPMG Huazhen RMB3,500,000.00 financial report prepared in Certified Public KPMG Huazhen accordance with the PRC Accountants Certified Public GAAP RMB7,500,000.00 Accountants The Group’s consolidated 16 years KPMG Certified RMB2,000,000.00 financial report prepared in Public accordance with the IFRS Accountants The above-mentioned audit fee included the travelling expenses incurred during the auditing period. 12. No disciplinary action was taken against the Company and the Company’s Directors, members of Supervisory Committee and senior management during the year under review. XI. Chronology of 2008 On 5 June 2008, the First Special General Meeting of 2008 approved the resolution regarding the unconditional donation of RMB100 million to participate in the resettlement and reconstruction works in the affected area following the Sichuan earthquake. In July 2007, “Wanhui Building” project, as a prototype for residential housing target at the low to middle income family group, was ready for occupation. On 18 September 2008, the RMB5.9 billion corporate bonds issued by the Company became listed and started trading on the Shenzhen Stock Exchange. On 29 October 2008, the results of the third WA Vanke Young Architect Competition, co-organised by China Vanke and “World Architecture” magazine, were announced. The theme of the competition is “The Possibility of Post-Earthquake Permanent Rural Residential Buildings”. On 6 November 2008, China Vanke’s Shanghai Company obtained the “2008 China Quality Awards” given out by China Association for Quality, and became the only representative of the service industry to receive this honour. 76 On 18 December 2008, The Zhongshan City Scenery project, as a residential community project, received– “The Eighth Zhan Tianyou Civil Engineering Award.” On 31 December 2008, the main school building and hospital complex located in Zundaozhen, Mianzhu City, Sichuan, which were wholly funded by the Company, were completed and were among the first permanent public buildings funded by enterprises after the earthquake. XII. Financial Report 77 China Vanke Co., Ltd. 萬科企業股份有限公司 31 December 2008 78 Independent auditor’s report to the shareholders of China Vanke Co., Ltd. (Established as a joint stock company in the People’s Republic of China with limited liability) We have audited the accompanying consolidated financial statements of China Vanke Co., Ltd. (the “Company”) and its subsidiaries (together with the Company referred to as the “Group”), which comprise the consolidated balance sheet as at 31 December 2008, and the consolidated income statement, the consolidated statement of recognised income and expense and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Directors’ responsibility for the financial statements The directors of the Company are responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 79 Independent auditor’s report to the shareholders of China Vanke Co., Ltd. (continued) (Established as a joint stock company in the People’s Republic of China with limited liability) Opinion In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2008, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards. Certified Public Accountants 9th Floor, China Resources Building 5001 Shennan East Road Shenzhen, China 6 March 2009 80 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 Consolidated income statement for the year ended 31 December 2008 (Expressed in Renminbi Yuan) Note 2008 2007 Revenue 8 38,619,214,077 33,486,560,759 Cost of sales, including provision for diminution in value of properties of RMB1,230,561,038 (2007: RMB1,650,543) (26,299,201,645) (20,695,981,456) Gross profit 12,320,012,432 12,790,579,303 Other income 9 77,012,468 105,081,205 Distribution costs (1,860,350,084) (1,194,543,702) Administrative expenses (1,549,020,923) (1,787,642,499) Other expenses 10 (142,844,134) (65,002,399) Profit from operating activities 8,844,809,759 9,848,471,908 -------------------- -------------------- Finance income 12 347,798,642 193,866,710 Finance expenses 12 (982,116,926) (542,296,341) Net finance costs 12 (634,318,284) (348,429,631) -------------------- -------------------- Share of profits less losses of associates 20 219,115,497 67,528,929 -------------------- -------------------- Share of profits less losses of jointly controlled entities 21 (9,379,634) 61,114,438 -------------------- -------------------- Profit before income tax 8,420,227,338 9,628,685,644 Income tax 13(a) (3,780,358,185) (4,311,184,826) Profit for the year 4,639,869,153 5,317,500,818 The accompanying notes form part of these financial statements. 81 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 Consolidated income statement for the year ended 31 December 2008 (continued) (Expressed in Renminbi Yuan) Note 2008 2007 Attributable to: Equity shareholders of the Company 4,033,170,028 4,844,235,494 Minority interests 30 606,699,125 473,265,324 Profit for the year 4,639,869,153 5,317,500,818 Basic earnings per share 14 0.37 0.45 The accompanying notes form part of these financial statements. 82 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 Consolidated balance sheet at 31 December 2008 (Expressed in Renminbi Yuan) Note 2008 2007 ASSETS Non-current assets Property, plant and equipment 16 1,290,600,931 582,077,206 Investment properties 17 198,394,767 277,090,575 Construction in progress 18 188,587,023 271,270,240 Interest in associates 20 508,175,188 326,433,224 Interest in jointly controlled entities 21 1,888,809,160 2,031,523,200 Other financial assets 22 256,158,816 569,496,856 Deferred tax assets 23(a) 1,449,480,633 604,057,419 Total non-current assets 5,780,206,518 4,661,948,720 -------------------- -------------------- Current assets Inventories 24 48,111,356 63,748,758 Properties held for development 25 34,131,859,032 27,877,597,737 Properties under development 25 44,340,453,697 34,338,168,018 Completed properties for sale 25 7,890,962,140 4,654,628,030 Trade and other receivables 26 8,416,531,561 12,495,032,111 Cash and cash equivalents 27 19,978,285,930 17,046,504,584 Total current assets 114,806,203,716 96,475,679,238 -------------------- -------------------- TOTAL ASSETS 120,586,410,234 101,137,627,958 EQUITY Share capital 28 10,995,210,218 6,872,006,387 Reserves 29 22,146,755,978 22,873,182,760 Awarded Shares purchased for the Employees’ Share Award Scheme 35 (1,250,040,934) (466,541,546) Total equity attributable to equity shareholders of the Company 31,891,925,262 29,278,647,601 Minority interests 30 6,926,624,219 4,640,875,428 TOTAL EQUITY 38,818,549,481 33,919,523,029 -------------------- -------------------- The accompanying notes form part of these financial statements. 83 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 Consolidated balance sheet at 31 December 2008 (continued) (Expressed in Renminbi Yuan) Note 2008 2007 LIABILITIES Non-current liabilities Interest-bearing borrowings and bonds 31 14,942,136,092 16,362,079,840 Deferred tax liabilities 23(b) 1,380,487,627 1,567,060,453 Other long term liabilities 32 12,644,850 9,913,831 Provisions 34 41,729,468 37,962,953 Total non-current liabilities 16,376,998,037 17,977,017,077 -------------------- -------------------- Current liabilities Interest-bearing borrowings 31 17,866,342,910 8,593,526,904 Financial derivatives 1,694,880 20,957,112 Trade and other payables 33 43,979,207,733 37,246,428,026 Current taxation 13(c) 3,543,617,193 3,380,175,810 Total current liabilities 65,390,862,716 49,241,087,852 -------------------- -------------------- TOTAL LIABILITIES 81,767,860,753 67,218,104,929 -------------------- -------------------- TOTAL EQUITY AND LIABILITIES 120,586,410,234 101,137,627,958 Approved and authorised for issue by the board of directors on 6 March 2009. ) ) ) Directors ) ) The accompanying notes form part of these financial statements. 84 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 Consolidated statement of recognised income and expense for the year ended 31 December 2008 (Expressed in Renminbi Yuan) Note 2008 2007 Exchange differences on translation of financial statements of foreign subsidiaries 29 129,508,819 137,730,285 Change in fair value of available-for-sale securities, net of related deferred tax 29 (90,154,429) 91,536,520 Net income recognised directly in equity for the year 39,354,390 229,266,805 Profit for the year 4,639,869,153 5,317,500,818 Total recognised income and expense for the year 4,679,223,543 5,546,767,623 Attributable to: Equity shareholders of the Company 4,072,524,418 5,073,502,299 Minority interests 606,699,125 473,265,324 Total recognised income and expense for the year 4,679,223,543 5,546,767,623 The accompanying notes form part of these financial statements. 85 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 Consolidated cash flow statement for the year ended 31 December 2008 (Expressed in Renminbi Yuan) Note 2008 2007 Cash flows from operating activities Cash receipts from customers 42,783,256,973 44,712,799,355 Cash paid to suppliers (30,218,067,735) (46,171,068,846) Cash paid to and for employees (2,319,451,076) (1,107,413,006) Cash paid for other taxes (3,233,320,498) (2,460,169,045) Cash generated from other operating activities 1,478,587,996 1,251,115,827 Cash used in other operating activities (3,895,351,267) (4,258,426,101) Cash generated from / (used in) operations 4,595,654,393 (8,033,161,816) PRC Corporate Income Tax paid (3,888,124,245) (1,912,740,279) Land Appreciation Tax paid (741,681,978) (491,813,721) Net cash used in operating activities (34,151,830) (10,437,715,816) -------------------- -------------------- Cash flows from investing activities Acquisitions of subsidiaries, net of cash acquired 6 (2,396,176,023) (1,482,600,009) Acquisitions of interest in associates, jointly controlled entities and other investments (1,350,265,711) (536,167,215) Acquisitions of minority interests (73,842,575) (453,757,686) Acquisitions of property, plant and equipment and construction in progress (215,283,734) (257,897,785) Payment for acquisitions of subsidiaries in previous year (217,036,600) (479,027,457) Prepayment for investments (15,947,889) (1,783,250,000) Proceeds from disposals of subsidiaries 7 3,547,677 70,715,899 Proceeds from disposal of partial interest in a subsidiary 838,743,750 - Proceeds from disposal of property, plant and equipment 5,687,794 1,008,581 Proceeds from sales of investments 201,580,207 60,714,271 Interest received 298,441,058 167,527,344 Dividends received 76,414,614 88,698,832 Net cash used in investing activities (2,844,137,432) (4,604,035,225) -------------------- -------------------- The accompanying notes form part of these financial statements. 86 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 Consolidated cash flow statement (continued) for the year ended 31 December 2008 (Expressed in Renminbi Yuan) 2008 2007 Cash flows from financing activities Net proceeds from issue of shares upon placing - 9,936,601,701 Net proceeds from issue of corporate bonds 5,759,981,650 - Capital injections from minority interests of subsidiaries 472,936,459 2,013,167,455 Proceeds from loans and borrowings 14,325,980,946 18,558,699,204 Repayment of loans and borrowings (11,690,595,100) (7,156,929,771) Dividend paid to equity shareholders (687,200,639) (689,482,471) Dividend paid to minority shareholders of subsidiaries (170,052,296) (98,092,627) Interest paid (2,144,710,398) (1,202,961,661) Net cash generated from financing activities 5,866,340,622 21,361,001,830 -------------------- -------------------- Net increase in cash and cash equivalents 2,988,051,360 6,319,250,789 Cash and cash equivalents at 1 January 17,046,504,584 10,743,695,198 Effect of exchange rate fluctuations on cash held (56,270,014) (16,441,403) Cash and cash equivalents at 31 December 19,978,285,930 17,046,504,584 The accompanying notes form part of these financial statements. 87 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 Notes to the consolidated financial statements (Expressed in Renminbi Yuan) 1 Reporting entity China Vanke Co., Ltd (the “Company”) is a company domiciled in the People’s Republic of China (the “PRC”). The consolidated financial statements of the Company for the year ended 31 December 2008 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interests in associates and jointly controlled entities. The Group is primarily involved in the development and sale of properties in the PRC (see note 8). 2 Basis of preparation (a) Statement of compliance The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRSs”) promulgated by the International Accounting Standards Board (“IASB”). The consolidated financial statements were approved and authorised for issue by the Company’s board of directors on 6 March 2009. (b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following: • financial instruments at fair value through profit or loss are measured at fair value • available-for-sale financial assets are measured at fair value The methods used to measure fair values are discussed further in note 5. (c) Functional and presentation currency The consolidated financial statements are presented in Renminbi Yuan, which is the Group’s functional currency. 88 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 2 Basis of preparation (continued) (d) Use of estimates and judgements The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements is included in the following notes: • Note 16 and 17 – depreciation and impairment of property, plant and equipment and investment properties • Note 25 – write down of properties • Note 26 – impairment of trade debtors and other receivables • Note 41 – accounting estimates and judgments 3 Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities. (a) Basis of consolidation (i) Subsidiaries and minority interests Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment. 89 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 3 Significant accounting policies (continued) (a) Basis of consolidation (continued) (i) Subsidiaries and minority interests (continued) Minority interests represent the portion of the net assets of subsidiaries attributable to interests that are not owned by the Company, whether directly or indirectly through subsidiaries, and in respect of which the Group has not agreed any additional terms with holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. Minority interests are presented in the consolidated balance sheet within equity, separately from equity attributable to the equity shareholders of the Company. Minority interests in the results of the Group are presented on the face of the consolidated income statement as an allocation of the total profit or loss for the year between minority interests and the equity shareholders of the Company. Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess, and any further losses applicable to the minority, are charged against the Group’s interest except to the extent that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. If the subsidiary subsequently reports profits, the Group’s interest is allocated all such profits until the minority’s share of losses previously absorbed by the Group has been recovered. Loans from holders of minority interests and other contractual obligations towards these holders are presented as financial liabilities in the consolidated balance sheet in accordance with notes 3(q) and 3(s) depending on the nature of the liability. (ii) Associates and jointly controlled entities An associate is an entity in which the Group has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions. A jointly controlled entity is an entity which operates under a contractual arrangement between the Group and other parties, where the contractual arrangement establishes that the Group and one or more of the other parties share joint control over the economic activity of the entity. An investment in an associate or a jointly controlled entity is accounted for in the consolidated financial statements under the equity method, unless it is classified as held for sale (or included in a disposal group of that is classified as held for sale). Under the equity method, the investment is initially recorded at cost and adjusted thereafter for the post acquisition change in the Group’s share of investees’ net assets and any impairment loss relating to the investment (see notes 3(h)(i)). The Group’s share of the post-acquisition, post- tax results of the investees and any impairment losses for the year are recognised in the consolidated income statement. 90 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 3 Significant accounting policies (continued) (a) Basis of consolidation (continued) (ii) Associates and jointly controlled entities (continued) When the Group’s share of losses exceeds its interest in the associate or the jointly controlled entity, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or the jointly controlled entity. For this purpose, the Group’s interest is the carrying amount of the investment under the equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment in the associate or the jointly controlled entity. Unrealised profits and losses resulting from transactions between the Group and its associates and jointly controlled entities are eliminated to the extent of the Group’s interest in the investee, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss. (iii) Business combinations When an acquisition is completed by a series of successive transactions, each significant transaction is considered individually for the purpose of the determination of the fair value of the identifiable assets, liabilities and contingent liabilities acquired and hence for the goodwill associated with the acquisition. The fair values of the identifiable assets and liabilities acquired can vary at the date of each transaction. When a transaction results in taking over the control of the entity, the interests of the entity previously recorded in the Group’s financial statements are revalued on the basis of the fair values of the identifiable assets and liabilities at the transaction date. Any revaluation surplus/deficits are recorded in equity. When control already exists at the date of addition in interest in an entity, no fair value adjustment is made to the identifiable assets, liabilities and contingent liabilities of the entity. Any difference between the considerations and the carrying amount of interests previously recorded in the Group’s financial statements is dealt with in equity. Where the Group decreases its interest in a subsidiary without losing control, any gain or loss on the partial disposal is recognised in profit or loss. (iv) Goodwill Goodwill represents the excess of the cost of a business combination or an investment in an associate or a jointly controlled entity over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to cash-generating units and is tested annually for impairment (see note 3(h)). In respect of associates or jointly controlled entities, the carrying amount of goodwill is included in the carrying amount of the interest in the associate jointly controlled entity and the investment as a whole is tested for impairment whenever there is objective evidence of impairment (see note 3(h)). 91 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 3 Significant accounting policies (continued) (a) Basis of consolidation (continued) (iv) Goodwill (continued) Any excess of the group’s interest in the net fair value of the acquiree’s identifiable assets,liabilities and contingent liabilities over the cost of a business combination or an investment in an associate or a jointly entity is recognised immediately in profit or loss. On disposal of a cash generating unit, an associate or a jointly controlled entity during the year, and attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal. (b) Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss. (ii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Renminbi at exchange rate at the reporting date. The income and expenses of foreign operations are translated to Renminbi at exchange rates at the dates of the transactions. Foreign currency differences are recognised directly in equity. Such differences have been recognised in the foreign exchange reserve. When a foreign operation is disposed of, in part of in full, the relevant amount in the foreign exchange reserve is transferred to profit or loss. (c) Financial instruments (i) Non-derivative financial instruments Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, including cash and cash equivalents, bonds and interest-bearing borrowings, and trade and other payables. Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below. 92 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 3 Significant accounting policies (continued) (c) Financial instruments (continued) (i) Non-derivative financial instruments (continued) Available-for-sale financial assets The Group’s investments in equity securities and certain debt securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (see note 3(h)), are recognised directly in equity. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit or loss. Other Other non-derivative financial instruments are measured at amortised cost using effective interest rate method, less any impairment losses. (ii) Derivative financial instruments Derivative financial instruments are recognised initially at fair value; attributable transaction costs are recognised in the profit or loss when incurred. Subsequent to initial reorganization, derivatives are measured at fair values, and all changes in its fair value are recognised immediately in profit or loss. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. (iii) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects. 93 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 3 Significant accounting policies (continued) (d) Property, plant and equipment (i) Recognition and measurement Hotel and other properties held for own use, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, and the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads and borrowing costs (see note 3(m)). Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within “other income” or “other expenses” in profit or loss. (ii) Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. (iii) Depreciation Depreciation is calculated to write-off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight line method over their estimated useful lives as follow: Estimated residual value as a percentage Year of costs Hotel buildings 34 4% Other buildings 12.5 - 25 4% Improvements to premises 5 years or over terms of leases - Plant and machinery 5 - 10 4% Furniture, fixtures and equipment 5 - 10 4% Motor vehicles 5 4% Both the useful life of an asset and its residual value, if any, are reviewed annually. 94 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 3 Significant accounting policies (continued) (e) Investment properties Investment properties are land and buildings which are owned or held under a leasehold interest (see note 3(g)) to earn rental income and/or for capital appreciation. These include land held for a currently undetermined future use and property that is being constructed or developed for future use as investment property. Investment properties are stated in the consolidated balance sheet at cost less accumulated depreciation and impairment losses (see note 3(h)). The cost of self-constructed assets includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads and borrowing costs (see note 3(m)). Any gain or loss arising from the retirement or disposal of an investment property is recognised in profit or loss. Rental income from investment property is accounted for as described in note 3(l)(iii). Depreciation is calculated to write off the cost of items of investment properties, less their estimated residual value of 4% of costs, using straight line method over their estimated useful lives of 12.5 to 40 years. (f) Construction in progress Construction in progress represents items of property, plant and equipment or investment properties under construction and pending installation, and is stated at cost less impairment losses (see note 3(h)). Cost comprises cost of materials, direct labour, borrowing costs capitalised (see note 3(m)), and an appropriate proportion of production overheads incurred during the periods of construction and installation. Capitalisation of those costs ceases and the construction in progress is transferred to property, plant and equipment or investment properties, as appropriate, when the asset is substantially ready for its intended use. No depreciation is provided in respect of construction in progress. 95 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 3 Significant accounting policies (continued) (g) Leased assets An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases. Where the Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred. The cost of acquiring land held under an operating lease is amortised on a straight-line basis over the period of the lease term except where the property is held for development, under development or completed and held for sale (see notes 3(j) and 3(k)). (h) Impairment of assets (i) Impairment of investments in debt and equity securities and other receivables Investments in debt and equity securities and other current and non-current receivables that are stated at cost or amortised cost or are classified as available-for-sale securities are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events: - significant financial difficulty of the debtor; - a breach of contract, such as a default or delinquency in interest or principal payments; - it becoming probable that the debtor will enter bankruptcy or other financial reorganisation; 96 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 3 Significant accounting policies (continued) (h) Impairment of assets (continued) (i) Impairment of investments in debt and equity securities and other receivables (continued) - significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and - a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost. If any such evidence exists, any impairment loss is determined and recognised as follows: - For investments in associates and jointly controlled entities recognised using the equity method, the impairment loss is measure by comparing the recoverable amount of the investment as a whole with its carrying amount in accordance with note 3(h)(ii). The impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount in accordance with note 3(h)(ii). - For unquoted securities that are carried at cost, the impairment loss is measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for securities are not reversed. - For trade and other current receivables and other financial assets carried at amortised cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where financial assets carried at amortised cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group. If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years. - For available-for-sale securities, the cumulative loss that has been recognised directly in equity is reclassified to profit or loss. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that asset previously recognised in profit or loss. Impairment losses recognised in profit or loss in respect of available-for-sale equity securities are not reversed through profit or loss. Any subsequent increase in the fair value of such assets is recognised directly in equity. 97 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 3 Significant accounting policies (continued) (h) Impairment of assets (continued) (i) Impairment of investments in debt and equity securities and other receivables (continued) Impairment losses in respect of available-for-sale debt securities are reversed if the subsequent increase in fair value can be objectively related to an event occurring after the impairment loss was recognised. Reversals of impairment losses in such circumstances are recognised in profit or loss. Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of trade debtors and bills receivable included within trade and other receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade debtors and bills receivable directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss. (ii) Impairment of other assets Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased: - investment properties; - property, plant and equipment; and - construction in progress. If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill, the recoverable amount is estimated annually whether or not there is any indication of impairment. - Calculation of recoverable amount The recoverable amount of an asset is the greater of its fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit). 98 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 3 Significant accounting policies (continued) (h) Impairment of assets (continued) (ii) Impairment of other assets (continued) - Recognition of impairment losses An impairment loss is recognised in profit or loss whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable. - Reversals of impairment losses In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed. A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised. (i) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write- down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs. (j) Properties under development and properties held for development Properties under development are stated at the lower of cost and net realisable value. The cost of properties under development and properties held for development comprise specifically identified cost, including the acquisition cost of land, aggregate cost of development, materials and supplies, wages and other direct expenses, an appropriate proportion of overheads and borrowing costs capitalised (see note 3(m)). Net realisable value represents the estimated selling price less the estimated costs of completion and the estimated costs to be incurred in selling the properties. 99 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 3 Significant accounting policies (continued) (k) Completed properties for sale Completed properties for sale are stated at the lower of cost and net realisable value. Cost is determined by apportionment of the total development costs for that development project attributable to the unsold properties. Net realisable value represents the estimated selling price less the estimated costs to be incurred in selling the properties. The cost of completed properties for sale comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. When properties are sold, the carrying amount of those properties is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of properties to net realisable value and all losses of properties are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of properties is recognised as a reduction in the amount of properties recognised as an expense in the period in which the reversal occurs. (l) Revenue recognition Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows: (i) Sale of properties Revenue from the sale of completed properties for sale is recognised upon the signing of the sale and purchase agreement and the receipt of the deposits pursuant to the sale and purchase agreement or the achievement of status ready for hand-over to customers as stipulated in the sales and purchase agreements, whichever is the later. Deposits and instalments received on properties sold prior to the date of revenue recognition are included in the consolidated balance sheet under sales deposits received in advance. (ii) Provision of services Revenue from services is recognised when services are rendered. (iii) Rental income from operating leases Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned. (iv) Interest income Interest income is recognised as it accrues using the effective interest method. 100 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 3 Significant accounting policies (continued) (l) Revenue recognition (continued) (v) Dividend income -Dividend income from unlisted investments is recognised when the shareholder’s right to receive payment is established. -Dividend income from listed investments is recognised when the share price of the investment goes ex-dividend. (vi) Government grants Government grants are recognised initially as deferred income when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group for expenses incurred are recognised as other sundry income in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are deducted in arriving at the carrying amount of the asset and consequently are effectively recognised in profit or loss over the useful life of the asset by way of reduced depreciation expense. The above revenue is net of the relevant taxes and is after the deduction of any trade discounts. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods. (m) Borrowing costs Borrowing costs are expensed in profit or loss in the period in which they are incurred, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale. The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete. (n) Employee benefits (i) Short term employee benefits and contributions to defined contribution retirement plans Salaries, annual bonuses, paid annual leave and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values. The Group’s contributions to defined contribution retirement plans administrated by the PRC government are recognised as an expense when incurred according to the contribution defined by the plans. 101 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 3 Significant accounting policies (continued) (n) Employee benefits (continued) (ii) Share based payments The Group has adopted an equity-settled Employees’ Share Award Scheme (the “Scheme”) for its employees (note 35) and the Group’s policy for the Scheme is set out below. The fair value of the shares granted to the employees (the “Awarded Shares”) is recognised as an employee cost with a corresponding increase in employee share based compensation reserve within equity. The fair value is measured at grant date using the Monte-Carlo option pricing model, taking into account the terms and conditions upon which the Awarded Shares were granted. As the employees have to meet vesting conditions before becoming unconditionally entitle to the Awarded Shares, the total estimated fair value of the Awarded Shares is spread over the vesting period, taking into account the probability that the Awarded Shares will vest. As the duration of the vesting period depends on the market price of the Company’s A shares, the estimation on the vesting period is reviewed at each balance sheet date. Any adjustment to the employee cost recognised in prior years is charged / credited to the profit or loss for the year of review with a corresponding adjustment to the compensation reserve. The Group’s contribution to the Scheme is stated at cost and is presented as a contra account, namely, Awarded Shares purchased for the Employees’ Share Award Scheme, within equity. When the Awarded Shares are transferred to the awardees upon vesting, the related costs of the Awarded Shares vested are credited to Awarded shares purchased for the Employee’s Share Award Scheme with a corresponding adjustment to the employee share based compensation reserve. (o) Income tax Income tax for the year comprises current tax and movements in deferred assets and liabilities. Current tax and movement in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits. 102 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 3 Significant accounting policies (continued) (o) Income tax (continued) Apart from certain limited exceptions, all deferred tax liabilities and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria is adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised. No temporary differences are recognised on the initial recognition of goodwill. In addition, the following temporary differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future. The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted. The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available. Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay the related dividends is recognised. Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Company or the Group has the legally enforceable right to set off current tax assets against current liabilities and the following additional conditions are met: - in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or 103 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 3 Significant accounting policies (continued) (o) Income tax (continued) - in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either: - the same taxable entity; or - different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously. (p) Trade and other receivables Trade and other receivables are initially recognised at fair value and thereafter at amortised cost less impairment losses for bad and doubtful debts (see note 3(h)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less impairment losses for bad and doubtful debts (see note 3(h)). (q) Trade and other payables Trade and other payables are initially recognised at fair value. Except for financial guarantee liabilities measured in accordance with note 3(t), trade and other payables are subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost. (r) Cash and cash equivalents Cash and cash equivalents comprise cash at bank and on hand, and demand deposits with banks. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement. (s) Interest-bearing borrowings and bonds Interest-bearing borrowings and bonds are recognised initially at fair value, less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings/bonds are stated at amortised cost with any difference between cost and redemption value being recognised in the profit or loss over the period of the borrowings/bonds, together with any interest and fees payable, using the effective interest method. 104 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 3 Significant accounting policies (continued) (t) Financial guarantees issued, provisions and contingent liabilities (i) Financial guarantees issued Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the “holder”) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Where the Group issues a financial guarantee, the fair value of the guarantee (being the transaction price, unless the fair value can otherwise be reliably estimated) is initially recognised as deferred income within trade and other payables. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognised in accordance with the Group’s policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognised in profit or loss on initial recognition of any deferred income. The amount of the guarantee initially recognised as deferred income is amortised in profit or loss over the term of the guarantee as income from financial guarantees issued. In addition, provisions are recognised in accordance with note 3(t)(iii) if and when (i) it becomes probable that the holder of the guarantee will call upon the group under the guarantee, and (ii) the amount of that claim on the Group is expected to exceed the amount currently carried in trade and other payables in respect of that guarantee i.e. the amount initially recognised, less accumulated amortisation. (ii) Contingent liabilities acquired in business combinations Contingent liabilities acquired as part of a business combination are initially recognised at fair value, provided the fair value can be reliably measured. After their initial recognition at fair value, such contingent liabilities are recognised at the higher of the amount initially recognised, less accumulated amortisation where appropriate, and the amount that would be determined in accordance with note 3(t)(iii). Contingent liabilities acquired in a business combination that cannot be reliably fair valued are disclosed in accordance with note 3(t)(iii). (iii) Other provisions and contingent liabilities Provisions are recognised for other liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote. 105 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 3 Significant accounting policies (continued) (u) Related parties For the purposes of these financial statements, a party is considered to be related to the Group if: (i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group. (ii) the Group and the party are subject to common control; (iii) the party is an associate of the Group or a joint venture in which the Group is a venturer; (iv) the party is a member of key management personnel of the Group, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals; (v) the party is close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or (vi) the party is a post-employment benefit plan which is for the benefit of employees of the Group or of any entity that is a related party of the Group. Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity. (v) Earnings per share The Group presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. There were no dilutive ordinary shares during the years ended 31 December 2008 and 2007, therefore, dilutive earnings per share are not presented. (w) Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Group operates predominantly in one business segment, property development in the PRC. In accordance with the Group’s internal financial reporting system, the Group’s has presented geographical segment information as the segment reporting format for the purposes of these financial statements. 106 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 3 Significant accounting policies (continued) (w) Segment reporting (continued) Segment revenue and assets include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. For example, segment assets may include inventories, trade receivables and property, plant and equipment. Segment revenue is determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group entities within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties. 4 Changes in accounting policies The IASB has issued a number of new interpretations and an amendment to IFRSs, that are first effective for the current accounting period of the Group. However, none of these developments are relevant to the Group’s operations. The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period (see note 42). 5 Determination of fair values A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. (i) Property, plant and equipment, properties held for development, properties under development and completed properties for sale The fair value of property, plant and equipment, properties held for development, properties under development and completed properties for sale recognised as a result of business combination is based on market values. The market value of property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The market value of items of plant, equipment, fixtures and fittings is based on the quoted market prices for similar items. (ii) Investment property The fair value of investment properties, which is determined for disclosure purposes in note 15, is estimated by the directors having regard to recent market transactions of similar properties in the same location as the Group’s investment properties. 107 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 5 Determination of fair values (continued) (iii) Investments in debt and equity securities The fair value of listed available-for-sale financial assets is determined by reference to their quoted closing bid price at the reporting date without any deduction for transaction costs. There is no quoted market price in an active market for the unlisted equity and debt securities and thus their fair value cannot be reliably estimated. (iv) Trade and other receivables The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. (v) Derivatives The fair value of financial derivatives, namely non-deliverable forward contracts, is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate. (vi) Interest bearing financial instruments The fair value of interest bearing amounts is estimated at the present value of future cash flows, discounted at current market interest rates for similar financial instruments and it approximates carrying value as at 31 December 2008 and 2007. (vii) Non-derivative financial liabilities The fair value of non-derivative financial liabilities, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. Given the terms of non-interest bearing and no fixed repayment terms for certain amounts due from associates and jointly controlled entities, their fair value cannot be reliably estimated. 108 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 6 Acquisitions of subsidiaries (i) Acquisitions of subsidiaries by the Group during the year ended 31 December 2008: (a) Pursuant to an agreement dated 26 September 2007, the Group acquired certain properties held for development from Shanghai Dijie Property Co. Ltd, which was located in Shanghai. The acquisition was completed on 26 February 2008. Upon acquisition date, the total assets acquired and related total liabilities assumed were RMB576 million and RMB561 million respectively (note). (b) Pursuant to an equity transfer agreement dated 17 April 2007, the Group acquired a 60% equity interest in Qingdao Dashan Real Estate Development Company Limited ("Qingdao Dashan"). Qingdao Dashan is principally engaged in holding certain properties held for development. The acquisition was completed on 30 April 2008. Upon acquisition date, the total assets and total liabilities of Qingdao Dashan were RMB143 million and RMB94 million respectively (note). (c) Pursuant to an equity transfer agreement dated 21 November 2007, the Group acquired the entire equity interest in Shanghai Xiangda Real Estate Development Company Limited ("Shanghai Xiangda"). Shanghai Xiangda is principally engaged in holding certain properties held for development and properties under development. The acquisition was completed on 5 January 2008. Upon acquisition date, the total assets and total liabilities of Shanghai Xiangda were RMB765 million and RMB1,326 million respectively (note). Subsequently, the Group transferred 25% equity interests of Shanghai Xiangda to an external investor. (d) Pursuant to an equity transfer agreement dated 4 January 2008, the Group acquired the entire equity interest in Guangdong Shangcheng Construction Company Limited ("Guangdong Shangcheng"). Guangdong Shangcheng is principally engaged in engineering design and construction in Guangdong. The acquisition was completed on 11 February 2008. Upon acquisition date, the total assets and total liabilities of Guangdong Shangcheng were RMB20 million and RMB Nil respectively. (e) Pursuant to an equity transfer agreement dated 18 January 2008, the Group acquired the entire equity interest in Wuhan Guohao Property Company Limited ("Wuhan Guohao"). Wuhan Guohao is principally engaged in holding certain properties held for development. The acquisition was completed on 27 February 2008. Upon acquisition, the total assets and total liabilities of Wuhan Guohao were RMB10 million and RMB Nil respectively (note). 109 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 6 Acquisitions of subsidiaries (continued) (i) Acquisitions of subsidiaries by the Group during the year ended 31 December 2008: (continued) (f) Pursuant to an equity transfer agreement dated 20 January 2008, the Group acquired a 55% equity interest in Qingdao Hao Ren Property Company Limited ("Qingdao Hao Ren"). Qingdao Hao Ren is principally engaged in holding certain properties held for development. The acquisition was completed on 2 April 2008. Upon acquisition date, the total assets and total liabilities of Qingdao Hao Ren were RMB81 million and RMB14 million respectively (note). (g) Pursuant to an equity transfer agreement dated 1 February 2008, the Group acquired a 75% equity interest in Ningbo Jinsheng Property Company Limited ("Ningbo Jinsheng"). Ningbo Jinsheng is principally engaged in holding certain properties held for development. The acquisition was completed on 1 February 2008. Upon acquisition date, the total assets and total liabilities of Ningbo Jinsheng were RMB20 million and RMB Nil respectively (note). (h) Pursuant to an equity transfer agreement dated 2 March 2008, the Group acquired the entire equity interest in Tianjin Binhai Fashion Property Company Limited ("Tianjin Binhai"). Tianjin Binhai is principally engaged in holding certain properties held for development. The acquisition was completed on 21 March 2008. Upon acquisition date, the total assets and total liabilities of Tianjin Binhai were RMB192 million and RMB141 million respectively (note). (i) Pursuant to an equity transfer agreement dated 31 March 2008, the Group acquired a 51% equity interest in Suzhou Huihua Investment and Property Company Limited ("Suzhou Huihua"). Suzhou Huihua is principally engaged in holding certain properties held for development and properties under development. The acquisition was completed on 30 June 2008. Upon acquisition date, the total assets and total liabilities of Suzhou Huihua were RMB364 million and RMB8 million respectively (note). (j) Pursuant to an equity transfer agreement dated 6 May 2008, the Group acquired a 78.4% equity interest in Shenzhen Yili Real Estate Development Company Limited ("Shenzhen Yili"). Shenzhen Yili is principally engaged in holding certain completed properties for sale. The acquisition was completed on 26 May 2008. Upon acquisition date, the total assets and total liabilities of Shenzhen Yili were RMB282 million and RMB248 million respectively (note). 110 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 6 Acquisitions of subsidiaries (continued) (i) Acquisitions of subsidiaries by the Group during the year ended 31 December 2008: (continued) (k) Pursuant to an equity transfer agreement dated 28 May 2008, the Group acquired a 55% equity interest in Shanghai Jingyuan Property Company Limited ("Shanghai Jingyuan"). Shanghai Jingyuan is principally engaged in holding certain properties held for development and properties under development. The acquisition was completed on 31 July 2008. Upon acquisition date, the total assets and total liabilities of Shanghai Jingyuan were RMB164 million and RMB132 million respectively (note). (l) Pursuant to an equity transfer agreement dated 30 June 2008, the Group acquired a 70% equity interest in Shenyang Vanke Jinyu Blue Property Development Company Limited ("Jinyu Blue"). Jinyu Blue is principally engaged in holding certain properties held for development. The acquisition was completed on 1 July 2008. Upon acquisition date, the total assets and total liabilities of Huadong Real Estate were RMB578 million and RMB Nil respectively (note). After the acquisition, the Company holds the entire equity interest of Jinyu Blue. (m) Pursuant to an equity transfer agreement dated 30 June 2008 and 2 July 2008, the Group acquired 45.5% and a further 24.5% equity interests in Shenyang Vanke Hunnan Jinyu Propoerty Development Company Limited ("Hunnan Jinyu") respectively. Hunnan Jinyu is principally engaged in holding certain properties held for development. Upon acquisition date, the total assets and total liabilities of Hunnan Jinyu Real Estate were RMB1,023 million and RMB0.3 million respectively (note). After the acquisition, the Company holds the entire equity interest of Hunhan Jinyu. (n) Pursuant to an equity transfer agreement dated 8 July 2008, the Group acquired a 90% equity interest in Chengdu Vanke Huadong Real Estate Company Limited ("Huadong Real Estate"). Huadong Real Estate is principally engaged holding certain properties held for development and properties under development. The acquisition was completed on 8 July 2008. Upon acquisition date, the total assets and total liabilities of Huadong Real Estate were RMB330 million and RMB304 million respectively (note). (o) Pursuant to an equity transfer agreement dated 21 July 2008, the Group acquired a 51% equity interest in Shanxi Hualian Property Development Compnay Limited ("Shanxi Hualian"). Shanxi Hualian is principally engaged in holding certain properties held for development. The acquisition was completed on 22 December 2008. Upon acquisition date, the total assets and total liabilities of Shanxi Hulian were RMB327 million and RMB107 million respectively (note). 111 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 6 Acquisitions of subsidiaries (continued) (i) Acquisitions of subsidiaries by the Group during the year ended 31 December 2008: (continued) (p) Pursuant to an equity transfer agreement dated 24 August 2008, the Group purchased a 80% equity interest in Changsha Sihai Property Company Limited ("Changsha Sihai"). Changsha Sihai is principally engaged in holding certain properties held for development. The acquisition was completed on 8 September 2008. Upon acquisition date, the total assets and total liabilities of Changsha Sihai were RMB40 million and RMB32 million respectively (note). (q) Pursuant to an equity transfer agreement dated 10 September 2008, the Group acquired the entire equity interest in Changsha Nandu Property Management Co.,Ltd.( "Changsha Nandu"). Changsha Nandu is principally engaged in property management in Changsha. The acquisition was completed on 17 Octorber 2008. Upon acquisition date, the total assets and total liabilities of Changsha Nandu were RMB1.4 million and RMB1 million respectively. (r) Pursuant to an equity transfer agreement dated 11 September 2008, the Group acquired a 51% equity interest in Chongqing Yu Development Coral Property Company Limited ("Coral Property"). Coral Property is principally engaged in holding certain properties held for development. The acquisition was completed on 28 September 2008. Upon acquisition date, the total assets and total liabilities of Coral Property were RMB483 million and RMB473 million respectively (note). Note: In the circumstances, the acquired subsidiaries’ major assets are properties held for development, properties under development and/or completed properties for sale. The directors consider that the purpose of acquiring those subsidiaries is solely to acquire the underlying properties. 112 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 6 Acquisitions of subsidiaries (continued) (i) Acquisitions of subsidiaries by the Group during the year ended 31 December 2008 (continued): The acquisitions had the following effect on the Group’s assets and liabilities on acquisition date: Recognised Carrying values on amount Adjustments acquisitions Cash and cash equivalents 235,900,013 - 235,900,013 Property, plant and equipment 4,820,223 - 4,820,223 Properties held for development, properties under development and completed properties for sales 4,417,811,633 3,865,153,705 8,282,965,338 Trade and other receivables 724,388,444 - 724,388,444 Other long-term assets 16,389,173 - 16,389,173 Interest-bearing loans and borrowings (165,000,000) - (165,000,000) Trade and other payables (3,276,108,747) - (3,276,108,747) Minority interests (440,498,709) (119,919,275) (560,417,984) Net identifiable assets and liabilities 1,517,702,030 3,745,234,430 5,262,936,460 Considerations, satisfied in cash (note) 4,782,729,812 Cash acquired (235,900,013) Considerations to be paid subsequent to 2008 (2,150,653,776) Net cash outflow 2,396,176,023 Note: Certain of the above subsidiaries (see notes 6 (i)(l) and 6 (i)(m)) were associates of the Group before the respective acquisitions. The difference between the total considerations and the recognised values of net identificable assets and liabilities on acquisitions represents the aggregate carrying value of those associates before the respective acquisitions. All subsidiaries set out above were acquired from third parties. 113 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 6 Acquisitions of subsidiaries (continued) (ii) Acquisitions of subsidiaries by the Group during the year ended 31 December 2007: (a) Pursuant to an equity transfer agreement dated 15 Decemeber 2006, the Company acquired the entire equity interest in Shanghai Hengda Real Estate Company Limited and its subsidiaries (“Shanghai Hengda Group”). The acquisition was completed on 15 January 2007. Shanghai Hengda Group is principally engaged in property development in Shanghai. Upon acquisition, the total assets and total liabilities of Shanghai Hengda Group are RMB539 million and RMB300 million respectively. (b) On 30 April 2007, the Group acquired a 90% equity interest in Shanghai Liantu Investment Consultancy Company Limited (“Shanghai Liantu”). Shanghai Liantu is principally engaged in the provision of investment an d management consultancy service. Upon acquisition, the total assets and total liabilities of Shanghai Liantu are RMB373 million and RMB372 million respectively. (c) On 30 April 2007, the Group acquired the entire equity interest in Power Great Investments Company Limited (“Power Great Investments”). The principal activity of Power Great Investments is investment holding. Upon acquisition, the total assets and total liabilities of Power Great Investments Limited are RMB63 million and RMB63 million respectively. (d) On 17 May 2007, the Group acquired the entire equity interest in Shenyang Zhengdayongfeng Real Estate Company Limited (“Shenyang Zhengdayongfeng”). Shenyang Zhengdayongfeng is principally engaged in property development in Shenyang. Upon acquisition, the total assets and total liabilities of Shenyang Zhengdayongfeng are RMB131 million and RMB123 million respectively. (e) On 30 June 2007, the Group acquired the entire equity in Shenzhen Hengda Property Company Limited (“Shenzhen Hengda Property”). The principal business of Shenzhen Hengda is property development in Shenzhen. Upon acquisition, the total assets and liabilities of Shenzhen Hengda Property are RMB325 million and RMB278 million respectively. (f) On 1 July 2007, the Group acquired a 51% equity interest in Dongguan New Century Mingshangju Business Real Estate Development Company Limited (“Dongguan Mingshangju”). Dongguan Mingshangju is principally engaged in property development in Dongguan. Upon acquisition, the total assets and total liabilities of Dongguan Mingshangju are RMB139 million and RMB138 million respectively. 114 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 6 Acquisitions of subsidiaries (continued) (ii) Acquisitions of subsidiaries by the Group during the year ended 31 December 2007 (continued): (g) On 1 July 2007, the Group acquired a 90% equity interest in Shenzhen Fuchun East (Group) Company Limited (“Shenzhen Fuchun”), Wanxuan Property (Shenzhen) Company Limited (“Wanxuan”), Nanjing Hengbang Real Estate Company Limited (“Nanjing Hengbang”) and Nanjing Fuchun East Real Estate Company Limited (“Nanjing Fuchun”). Shenzhen Fuchun, Wanxuan, Nanjing Hengbang and Nanjing Fuchun are principally engaged in property development in eastern and southern China. Upon acquisitions, the total assets and total liabilities of these four companies are RMB6,948 million and RMB5,527 million respectively. (h) On 6 July 2007, the Group acquired the entire equity interest in Wuhan Xinbao Property Management Company Limited (“Wuhan Xinbao”). Wuhan Xinbao is principally engaged in property management in Wuhan. Upon acquisition, the total assets of Wuhan Xinbao are RMB2.3 million. (i) On 30 July 2007, the Group acquired an addition 20% equity interest in Xiamen Vanke Star Property Development Company Limited (“Xiamen Vanke Star”), increasing its ownership from 35% to 55%. Xiamen Vanke Star is principally engaged in property development in Xiamen. Upon acquisition, the total assets and total liabilities of Xiamen Vanke Star are RMB2 million and RMB3,263 respectively. (j) On 25 October 2007, the Group acquired the entire equity interest in Shanghai Meilianhuafu Property Development Company Limited (“Shanghai Meilianhuafu”). Shanghai Meilianhuafu is principally engaged in property development in Shanghai. Upon acquisition, the total assets and total liabilities of Shanghai Meilianhuafu are RMB474 million and RMB274 million respectively. (k) On 25 October 2007, the Group acquired the entire equity interest in Shanghai Luolian Property Development Company Limited (“Shanghai Luolian”). Shanghai Luolian is principally engaged in property development in Shanghai. Upon acquisition, the total asset and total liability of Shanghai Luolian are RMB277 million and RMB177 million respectively. (l) On 28 November 2007, the Group acquired an addition 25% equity interest in Shenzhen Vanke Heng Feng Property Development Company Limited (“Shenzhen Heng Feng”), increasing its ownership from 30% to 55%. Shenzhen Heng Feng is principally engaged in property development in Shenzhen. Upon acquisition, the total assets and total liabilities of Shenzhen Heng Feng are RMB587 million and RMB535 million respectively. (m) On 30 November 2007, the Group acquired a 90% equity interest in Shenzhen Daolin Investments Development Company Limited (“Shenzhen Daolin”). Shenzhen Daolin is principally engaged in property development in Shenzhen. Upon acquisition, the total assets and total liabilities of Shenzhen Daolin are RMB442 million and RMB422 million respectively. 115 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 6 Acquisitions of subsidiaries (continued) (ii) Acquisitions of subsidiaries by the Group during the year ended 31 December 2007 (continued): The acquisitions had the following effect on the Group’s assets and liabilities on acquisition date: Recognised Carrying values on amount Adjustments acquisitions Cash and cash equivalents 379,075,905 - 379,075,905 Property, plant and equipment 138,038,510 9,582,894 147,621,404 Properties held for development, properties under development and completed properties for sales 4,706,934,944 2,260,295,177 6,967,230,121 Trade and other receivables 2,973,606,488 - 2,973,606,488 Interest in jointly controlled entities 74,119,265 - 74,119,265 Interest-bearing loans and borrowings (965,800,403) - (965,800,403) Trade and other payables (6,898,493,896) - (6,898,493,896) Deferred tax liabilities - (586,748,704) (586,748,704) Minority interests (4,750,803) (212,048,283) (216,799,086) Net identifiable assets and liabilities 402,730,010 1,471,081,084 1,873,811,094 Considerations, satisfied in cash 1,873,811,094 Cash acquired (379,075,905) Considerations to be paid subsequent to 2007 (12,135,180) Net cash outflow 1,482,600,009 All subsidiaries set out above were acquired from third parties. 116 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 7 Disposals of subsidiaries (i) Disposal of a subsidiary by the Group during the year ended 31 December 2008: On 30 May 2008, the Group disposed of 50% equity interest in Dongguan Vanke Property Co., Ltd. (“Dongguan Vanke”), which was previously wholly owned by the Group, to an independent party, at a consideration of RMB5 million. Subsequent to the transfer, Dongguan Vanke became a jointly contolled entity of the Group. A gain of RMB295,087 arose from the disposal. Effect of the disposal on individual assets and liabilities of the Group for the year ended 31 December 2008 Cash and cash equivalents 1,452,323 Trade and other receivables 1,495,605,510 Properties held for development, properties under development and completed properties for sales 23,389,443 Property, plant and equipment 27,889 Trade and other payables (1,511,065,339) Net identifiable assets and liabilities 9,409,826 Equity interest disposed of by the Group 50% Net identifiable assets and liabilities disposed of by the Group 4,704,913 Gain on disposal of a subsidiary 295,087 Considerations received, satisfied in cash 5,000,000 Cash disposed of (1,452,323) Net cash inflow 3,547,677 (ii) Disposals of subsidiaries by the Group during the year ended 31 December 2007: (a) On 16 August 2007, the Group disposed of the entire equity interest in Shenzhen Wenxin Garden Real Estate Co. Ltd., which was previously wholly owned by the Group, to an independent third party, at a consideration of RMB10 million. A loss of RMB75,377 arose from the disposal. (b) On 16 December 2007, the Group transfer its 85% equity interest in Shanghai White Horse Real Estate Co. Ltd. (“Shanghai White Horse”) to Yihang Vanke Company Limited (“Yihang Vanke”), which is a jointly controlled entity of the Group, at a consideration of RMB115 million. Subsequent to the transfer, the Group still effectively holds a 49% equity interest in Shanghai White Horse, 15% of which is directly held by the Group while the remaining is held through Yihang Vanke. A gain of RMB24 million arose from the transfer. 117 Financia 8 Segment reporting The directors consider that the Group’s results for the year ended 31 December 2008 were almost entirely att and related activities in the PRC. Accordingly, no analysis by business segment has been presented. An analysis of the revenue and assets of the Group according to the geographical location of the property de set out below: Shenzhen, Dongguan Gua and Zhongshan Tianjin Beijing Shanghai region Northeast region and (note (1)) (note (2)) 2008 2008 2008 2008 2008 Segment revenue 7,285,410,540 3,188,694,285 3,130,892,675 12,238,517,025 2,713,907,275 5,965,7 Segment assets 27,162,078,148 8,140,654,163 7,261,407,606 49,640,270,611 8,935,390,348 16,041,8 2007 2007 2007 2007 2007 Segment revenue 9,966,466,668 653,191,506 1,614,107,927 10,520,228,501 2,093,938,700 3,857,2 Segment assets 19,439,529,931 5,459,342,439 6,957,634,894 34,713,586,433 3,979,246,326 12,651,1 Revenue is based on the geographical location of the property development projects. Assets are disclosed by Notes: (1) Shanghai region represents Shanghai, Nanjing, Wuxi, Suzhou, Zhejiang, Ningbo, Zhenjiang, Kunshan and (2) Northeast region represents Shenyang, Changchun, Dalian, and Anshan. (3) Other represents Chengdu, Zhuhai, Changsha, Xiamen, Wuhan, Qingdao and other non-property developm 118 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 9 Other income 2008 2007 Forfeited deposits and compensation from customers 19,639,564 12,622,118 Gain on disposals of subsidiaries 295,087 23,982,804 Gain on disposals of interest in associates - 2,879,130 Gain on disposals of available-for-sale securities 601,533 46,761,468 Gain on disposals of investment properties - 651,474 Gain on disposals of property, plant and equipment 8,936,739 - Unrealised gain on financial derivatives 19,262,232 - Compensation income from insurance 2,797,899 - Government subsidies 11,314,568 8,782,128 Other sundry income 14,164,846 9,402,083 77,012,468 105,081,205 10 Other expenses 2008 2007 Provision for doubtful debts 37,552,195 17,263,680 Compensation to customers 19,670,383 7,793,524 Donations 53,597,709 5,072,881 Loss on disposals of property, plant and equipment 2,336,423 675,525 Realised and unrealised loss on financial derivatives 5,332,863 20,957,112 Penalties 7,452,967 - Other sundry expenses 16,901,594 13,239,677 142,844,134 65,002,399 11 Personnel expenses 2008 2007 Wages, salaries and other staff costs 790,513,017 1,542,118,654 Contributions to defined contribution plans 110,499,460 98,183,334 Equity-settled share-based compensation (note 35) 235,000,000 373,120,000 1,136,012,477 2,013,421,988 As stipulated by the regulations of the PRC, the Group participates in various defined contribution retirement plans organised by municipal and provincial governments for its employees. The Group is required to make contributions to the retirement plans at the rates ranged from 10% to 22% of the salaries, bonuses and certain allowances of the employees. A member of the plan is entitled to a pension equal to a fixed proportion of the salary prevailing at the member’s retirement date. The Group has no other material obligation for the payment of pension benefits associated with these plans beyond the annual contributions described above. 119 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 12 Net finance costs 2008 2007 Interest income 300,476,020 167,527,344 Dividend income 4,713,306 5,763,924 Net foreign exchange gain 42,609,316 20,575,442 Finance income 347,798,642 193,866,710 -------------------- -------------------- Interest expense and other borrowing costs 2,459,226,301 1,369,266,320 Less: Interest capitalised (1,477,109,375) (826,969,979) Finance expenses 982,116,926 542,296,341 -------------------- -------------------- Net finance costs (634,318,284) (348,429,631) Interest expense and other borrowing costs have been capitalised at an average rate of 7.0% (2007: 7.1%) per annum. 13 Taxation (a) Taxation in the consolidated income statement represents: 2008 2007 Current tax PRC Corporate Income Tax - Provision for the year 2,631,939,752 2,833,057,026 Land Appreciation Tax 2,161,307,853 2,075,722,450 4,793,247,605 4,908,779,476 -------------------- -------------------- Deferred tax Fair value adjustments arising from business combinations - PRC Corporate Income Tax (104,100,065) (140,352,504) - Land Appreciation Tax (63,366,141) (88,642,491) Accrual for Land Appreciation Tax (336,686,228) (314,905,729) Tax losses (57,960,111) (19,214,244) Provision for diminution in value of properties (305,849,580) - Accruals for construction costs (134,365,188) (26,951,262) Other temporary differences (10,562,107) (7,528,420) (1,012,889,420) (597,594,650) -------------------- -------------------- 3,780,358,185 4,311,184,826 The provision for PRC Corporate Income Tax is calculated based on the estimated taxable income at the rates applicable to each company in the Group. The income tax rates applicable to the principal subsidiaries in the PRC range between 18% and 25%. 120 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 13 Taxation (continued) (a) Taxation in the consolidated income statement represents: (continued) According to the China's Corporate Income Tax ("CIT") Law that was passed by the Standing Committee of the Tenth National People's Congress ("NPC") on 16 March 2007 and the Notice of the State Council on the Transitional Preferential Policy regarding implementation of the CIT Law (Guo Fa [2007] No.39) issued on 26 December 2007, income tax rate is revised to 25% with effect from 1 January 2008. For certain enterprises that are entitled to preferential income tax rate of 15% before the implementation of the CIT Law, the income tax rate applicable will be 18%, 20%, 22%, 24% and 25% in 2008, 2009, 2010, 2011, and 2012 and thereafter respectively. As at 31 December 2008 and 2007, deferred tax assets and liabilities are calculated based on the applicable income tax rates enacted by the NPC from 1 January 2008. Land Appreciation Tax is levied on properties developed by the Group for sale, at progressive rates ranging from 30% to 60% on the appreciation of land value, which under the applicable regulations is calculated based on the proceeds of sales of properties less deductible expenditures including lease charges of land use rights, borrowing costs and relevant property development expenditures. 121 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 13 Taxation (continued) (a) Taxation in the consolidated income statement represents: (continued) The following is reconciliation between tax expense and accounting profit at applicable tax rates: 2008 2007 Profit before income tax 8,420,227,338 9,628,685,644 Less: Land Appreciation Tax (2,097,941,712) (1,987,079,959) 6,322,285,626 7,641,605,685 Notional tax on profit before taxation calculated at effective income tax rate of the relevant group subsidiaries concerned 1,518,200,485 2,191,128,107 Non-taxable income (33,570,053) (42,452,311) Non-deductible expenses 90,026,225 122,838,654 Effect of tax losses not recognised 112,880,745 8,254,206 Recognition of previously unrecognised tax losses (2,269,994) (18,041,757) Effect of unused tax losses recognised in prior years - 35,469,217 Effect of temporary difference not recognised 947,005 - Effect of change in tax rates on deferred tax in respect of brought forward temporary differences - 6,502,501 Effect of change in tax rates on deferred tax in respect of current year temporary differences (3,797,940) 20,406,250 PRC Corporate Income Tax 1,682,416,473 2,324,104,867 Land Appreciation Tax 2,097,941,712 1,987,079,959 Actual total tax expense 3,780,358,185 4,311,184,826 (b) Taxation recognised directly in equity 2008 2007 Arising from fair value adjustments on available-for-sale securities (note 23(b)) (19,106,620) 21,981,456 122 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 13 Taxation (continued) (c) Current taxation in the consolidated balance sheet represents: 2008 2007 Corporate Income Tax Brought forward balance 1,359,800,654 439,483,907 Provision for the year 2,631,939,752 2,833,057,026 PRC Corporate Income Tax paid (3,888,124,245) (1,912,740,279) 103,616,161 1,359,800,654 -------------------- -------------------- Land Appreciation Tax Brought forward balance 2,020,375,156 436,466,427 Provision for the year 2,161,307,854 2,075,722,450 Land Appreciation Tax paid (741,681,978) (491,813,721) 3,440,001,032 2,020,375,156 -------------------- -------------------- 3,543,617,193 3,380,175,810 Land Appreciation Tax provisions have been made pursuant to Guo Shui Fa (2006) No 187 Circular of State Administration of Taxation on Relevant Issues of Settlement and Management of Land Appreciation Tax for Real Estate Developers. The management consider the timing of settlement is dependant on the implementation practice of local tax bureau. As a result of the uncertainty of timing of payment of Land Appreciation Tax, the provisions have been recorded as current liabilities as at 31 December 2008 and 2007. 14 Basic earnings per share (a) The calculation of basic earnings per share is based on the net profit for the year attributable to equity shareholders of the Company of RMB4,033,170,028 (2007: RMB4,844,235,494) and on the weighted average number of ordinary shares outstanding during the year of 10,995,210,218 (2007 restated: 10,656,908,074) shares. (b) During the year, the Company issued additional ordinary shares out of the share premium in the ratio of 10:6. Accordingly, the weighted average number of ordinary shares used in the calculation of the basic earnings per share in 2007 was adjusted to 10,656,908,074. As a result, the basic earnings per share were adjusted to RMB0.45. 123 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 15 Dividends A cash dividend of RMB0.1 per share, resulting in a dividend payment of RMB 687,200,639 in respect of the year ended 31 December 2007 was declared during the year ended 31 December 2008. A cash dividend of RMB0.15 per share, resulting in a dividend payment of RMB655,484,812 in respect of the year ended 31 December 2006 was declared during the year ended 31 December 2007, of which RMB649,427,191 was paid to shareholders while RMB6,057,621 was reinvested in the Employees’ Share Award Scheme. A cash dividend of RMB0.05 per share, resulting in a dividend payment of RMB549,760,511 in respect of the year ended 31 December 2008 are to be proposed at the Company’s forthcoming annual general meeting. The dividend has not been recognised as a liability at the balance sheet date. 124 Financial statem 16 Property, plant and equipment Hotel and Furniture, other buildings Improvements Plant and fixtures and held for own use to premises machinery equipment Cost: At 1 January 2007 493,193,622 47,621,792 17,649,347 113,225,691 Additions: - via business combinations 81,957,587 6,662,507 11,468,675 41,193,145 - others 16,733,257 1,010,868 5,432,325 1,539,953 Disposals (20,868,515) (3,234,743) (9,299,952) (9,920,670) At 31 December 2007 571,015,951 52,060,424 25,250,395 146,038,119 -------------------- -------------------- -------------------- -------------------- ----- At 1 January 2008 571,015,951 52,060,424 25,250,395 146,038,119 Additions: - via acquisitions of subsidiaries 2,854,256 - - 3,606,227 - transfer from completed properties for sale 483,677,655 - - - - others 237,404,662 37,196,242 1,686,605 40,932,376 Disposals (20,683,753) (13,115,878) (710,164) (10,096,065) At 31 December 2008 1,274,268,771 76,140,788 26,226,836 180,480,657 -------------------- -------------------- -------------------- -------------------- ----- 125 Financial statem 16 Property, plant and equipment (continued) Hotel and Furniture, other buildings Improvements Plant and fixtures and held for own use to premises machinery equipment Accumulated depreciation and impairment loss: At 1 January 2007 88,623,444 27,076,693 4,408,430 64,676,045 Additions: - via business combinations 8,113,801 664,918 1,112,462 4,242,894 Charge for the year 45,431,693 6,274,433 3,385,147 18,951,182 Written back on disposals (18,637,981) (602,017) (233,988) (8,357,966) At 31 December 2007 123,530,957 33,414,027 8,672,051 79,512,155 -------------------- -------------------- -------------------- -------------------- ----- At 1 January 2008 123,530,957 33,414,027 8,672,051 79,512,155 Additions: - via acquisitions of subsidiaries 896,542 - - 1,505,882 Charge for the year 33,241,383 6,048,379 1,260,969 25,235,806 Written back on disposals (7,039,351) (811,464) (234,146) (6,795,685) At 31 December 2008 150,629,531 38,650,942 9,698,874 99,458,158 -------------------- -------------------- -------------------- -------------------- ----- Net book value: At 31 December 2008 1,123,639,240 37,489,846 16,527,962 81,022,499 At 31 December 2007 447,484,994 18,646,397 16,578,344 66,525,964 126 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 17 Investment properties 2008 2007 Cost: At 1 January 290,242,224 107,604,755 Transfer from completed properties for sale 74,164,374 224,799,826 Disposals (138,557,108) (42,162,357) At 31 December 225,849,490 290,242,224 ------------------ ------------------ Accumulated depreciation and impairment loss: At 1 January 13,151,649 50,625,631 Charge for the year 14,540,704 2,992,593 Written back on disposals (237,630) (40,466,575) At 31 December 27,454,723 13,151,649 ------------------ ------------------ Net book value: At 31 December 2008 198,394,767 277,090,575 Investment properties comprise certain commercial properties that are leased to external parties. The directors, having regard to recent market transactions of similar properties in the same location as the Group’s investment properties, consider the estimated fair value of the investment properties to be RMB316,581,608 (2007: RMB577,570,000). The Group leases out investment properties under operating leases. The leases typically run for an initial period of two to five years. None of the leases includes contingent rentals. The Group’s total future minimum lease payments under non-cancellable operating leases are receivable as follows: 2008 2007 Within 1 year 10,317,612 23,553,374 After 1 year but within 5 years 32,692,959 80,152,231 After 5 years 75,950,458 101,365,185 118,961,029 205,070,790 18 Construction in progress 2008 2007 At 1 January 271,270,240 3,272,023 Additions 89,427,277 267,998,217 Transferred out to property, plant and equipment (109,211,201) - Transferred out to properties under development (62,899,293) - 188,587,023 271,270,240 Construction in progress represents self-constructed office premises under construction. 127 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 19 Principal subsidiaries Place of Percentage of interest establishment held by the held by the held by a Principal and operation Paid in capital Name of company Group Company subsidiary activities Anshan Vanke Property Property Anshan USD5,172,700 100.00% - 100.00% Development Co., Ltd. development Anshan Vanke Property Property Management Company Anshan RMB3,000,000 100.00% - 100.00% management Limited Beijing Chaoyang Vanke Property Property Development Beijing RMB200,000,000 60.00% 60.00% - development Company Limited Beijing Huayuhong Management Consultancy Company Beijing RMB100,000 100.00% - 100.00% and Consultancy Limited Beijing Vanke Wonderland Property Real Estate Development Beijing RMB10,000,000 100.00% - 100.00% development Company Limited Beijing Vanke Enterprises Property Shareholding Company Beijing RMB1,000,000,000 100.00% 90.00% 10.00% development Limited Beijing Vanke Haikai Real Property Estate Development Beijing RMB10,000,000 100.00% - 100.00% development Company Limited Beijing Vanke Property Property Beijing USD18,400,000 100.00% - 100.00% Company Limited development Beijing Vanke Property Property Management Company Beijing RMB22,000,000 100.00% - 100.00% management Limited Beijing Vanke Zhongliang Jiarifengjing Real Estate Property Beijing RMB830,000,000 50.00% - 50.00% Development Company development Limited (note) Beijing Wanxin Investment Development Company Beijing RMB30,000,000 100.00% - 100.00% Investment Limited Changchun Vanke Real Estate Property Changchun RMB50,000,000 100.00% 95.00% 5.00% Company Limited development Changchun Wanrun Real Property Changchun RMB10,000,000 100.00% - 100.00% Estate Company Limited development Changchun Vanke Property Property Management Company Changchun RMB3,000,000 100.00% - 100.00% management Limited Changsha Hongcheng Real Property Estate Development Changsha RMB20,000,000 80.00% - 80.00% development Company Limited Changsha Vanke Property Property Management Company Changsha RMB5,000,000 100.00% - 100.00% management Limited Changsha Vanke Real Estate Property Changsha RMB20,000,000 100.00% - 100.00% Company Limited development Changsha Nandu Property Property Management Company Changsha RMB500,000 100.00% - 100.00% management Limited Changsha Sihai Property Property Changsha RMB8,000,000 80.00% - 80.00% Company Limited development Chengdu Bei Fu Property Property Chengdu RMB10,000,000 90.00% - 90.00% Company Limited development 128 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 19 Principal subsidiaries (continued) Place of Percentage of interest establishment held by the held by the held by a Principal and operation Paid in capital Name of company Group Company subsidiary activities Chengdu Vanke Chenghua Property Chengdu USD75,142,857 100.00% - 100.00% Property Company Limited development Chengdu Vanke Guanghua Property Chengdu USD131,428,571 100.00% - 100.00% Property Company Limited development Chengdu Vanke Guobin Property Chengdu USD140,000,000 60.00% - 60.00% Property Company Limited development Chengdu Vanke Jinjiang Property Chengdu RMB10,000,000 100.00% - 100.00% Property Company Limited development Chengdu Vanke Property Property Development Company Chengdu USD12,100,000 60.00% - 60.00% development Limited Chengdu Vanke Property Property Management Company Chengdu RMB5,000,000 100.00% - 100.00% management Limited Chengdu Vanke Real Estate Property Chengdu RMB80,000,000 100.00% 90.00% 10.00% Company Limited development Chengdu Vanke Huadong Real Property Chengdu RMB77,800,000 100.00% - 100.00% Estate Company Limited development Chongqing Yu Development Property Coral Property Company Chongqing RMB100,000,000 51.00% - 51.00% development Limited Vanke (Chongqing) Real Estate Property Chongqing RMB80,000,000 100.00% 100.00% - Company Limited development Dalian Vanke City Real Property Dalian USD42,000,000 55.00% - 55.00% Property Company Limited development Dalian Vanke Jinxiu Flower Property City Development Company Dalian RMB70,000,000 100.00% 65.00% 35.00% development Limited Dalian Vanke Real Estate Property Development Company Dalian RMB32,000,000 100.00% - 100.00% development Limited Dalian Vanke Property Property Management Company Dalian RMB3,860,000 100.00% - 100.00% management Limited Dalian Vanke Property Property Dalian RMB30,000,000 100.00% 100.00% 0.00% Company Limited development Chengdu Vanke Huadong Real Property Chengdu RMB10,000,000 100.00% 100.00% 0.00% Estate Company Limited development Dongguan Sunshine Real Property Dongguan RMB25,000,000 100.00% - 100.00% Estate Company Limited development Dongguan Vanke Construction Construction Dongguan RMB20,000,000 100.00% - 100.00% Research Company Limited research Dongguan Vanke Real Estate Property Dongguan RMB20,000,000 100.00% - 100.00% Company Limited development Dongguan Xinwan Property Property Development Company Dongguan RMB10,000,000 51.00% - 51.00% development Limited 129 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 19 Principal subsidiaries (continued) Place of Percentage of interest establishment held by the held by the held by a Principal and operation Paid in capital Name of company Group Company subsidiary activities Dongguan New Century Mingshangju Commercial Property Dongguan RMB1,000,000 51.00% - 51.00% Real State Development development Company Limited Dongguan Songhuju Property Property Dongguan RMB10,000,000 100.00% - 100.00% Company Limited development Dongguan Songshanju Property Property Development Dongguan RMB10,000,000 100.00% - 100.00% development Company Limited Dongguan Vanke Property Property Management Company Dongguan RMB5,000,000 100.00% - 100.00% management Limited Foshan Vanke Property Property Management Company Foshan RMB3,000,000 100.00% - 100.00% management Limited Foshan Shunde District Vanke Property Foshan RMB10,000,000 100.00% - 100.00% Property Company Limited development Foshan Vanke Investment Property Foshan RMB10,000,000 100.00% - 100.00% Company Limited development Foshan Vanke Property Property Foshan RMB20,000,000 100.00% 20.00% 80.00% Company Limited development Foshan Vanke Real Estate Property Foshan RMB80,000,000 100.00% - 100.00% Company Limited development Foshan Nanhai District Property Jinyuhuating Propoerty Foshan USD44,000,000 55.00% - 55.00% development Company Limited Vanke Property (Hong Kong) Hong Kong USD9,500,000 100.00% - 100.00% Investment Company Limited Fuzhou Vanke Real Estate Property Fuzhou RMB20,000,000 100.00% 40.00% 60.00% Company Limited development Fuyang Quanshuiwan Property Property Fuyang RMB29,000,000 100.00% - 100.00% Company Limited development Fuyang Vanke Real Estate Property Development Company Fuyang RMB300,000,000 100.00% - 100.00% development Limited Guangzhou Fusheng Decoration and Decoration Engineering Guangzhou RMB10,000,000 100.00% - 100.00% Design Company Limited Guangzhou Pengwan Property Property Guangzhou RMB200,000,000 50.00% - 50.00% Company Limited (note) development Guangzhou Vanke Duhua Real Property Guangzhou RMB10,000,000 100.00% - 100.00% Estate Company Limited development Guangzhou Vanke Property Property Guangzhou RMB30,000,000 100.00% - 100.00% Company Limited development Guangzhou Vanke Property Property Management Company Guangzhou RMB5,000,000 100.00% - 100.00% management Limited Guangzhou Vanke Real Estate Property Guangzhou RMB50,000,000 100.00% - 100.00% Company Limited development Guangzhou Vanke Star Property Property Company Limited Guangzhou USD18,600,000 50.00% - 50.00% development (note) 130 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 19 Principal subsidiaries (continued) Place of Percentage of interest establishment held by the held by the held by a Principal and operation Paid in capital Name of company Group Company subsidiary activities Guangzhou Vanke Suidong Property Real Estate Company Guangzhou RMB10,000,000 100.00% - 100.00% development Limited Guangzhou Wanxin Property Property Guangzhou HKD760,000,000 100.00% - 100.00% Company Limited development Top Glory International Property Property (Guangzhou) Guangzhou HKD85,550,000 100.00% - 100.00% development Company Limited Hainan Fuchun East Real Property Estate Development Hainan RMB20,000,000 100.00% - 100.00% development Company Limited Hangzhou Vanke Property Property Management Company Hangzhou RMB2,000,000 100.00% - 100.00% management Limited Hangzhou Bailuwan Holiday Hotel Hangzhou RMB10,000,000 100.00% - 100.00% Hotel Company Limited Investment Hangzhou Vanke Property Property Hangzhou RMB320,000,000 100.00% - 100.00% Company Limited development Hangzhou Vanke Rongda Real Property Hangzhou RMB30,000,000 55.00% - 55.00% Estate Company Limited development Hangzhou Yuhang Xindu Real Property Estate Development Hangzhou RMB20,000,000 100.00% - 100.00% development Company Limited Hangzhou Qianjiangwan Property Hangzhou RMB57,000,000 90.00% - 90.00% Gargen Company Limited development Zhejiang Vanke Nandu Real Property Hangzhou RMB150,000,000 100.00% - 100.00% Estate Company Limited development Hangzhou Changyuan Tourist Development Company Hangzhou RMB90,000,000 100.00% - 100.00% Tourism Limited Hangzhou Liangzhu Culture Property Town Development Hangzhou RMB30,000,000 100.00% - 100.00% development Company Limited Hangzhou Linlu Real Estate Property Development Company Hangzhou RMB170,000,000 100.00% - 100.00% development Limited Hangzhou Nandu Yousheng Property Real Estate Development Hangzhou RMB10,000,000 60.00% - 60.00% development Company Limited Hangzhou Wankun Property Property Development Company Hangzhou RMB350,000,000 51.00% - 51.00% development Limited Hangzhou Yindu Property Property Hangzhou RMB20,000,000 100.00% - 100.00% Company Limited development Hefei Vanke Property Company Property Hefei RMB20,000,000 100.00% 100.00% - Limited development Tander China Investment Hong Kong HKD10,000 100.00% - 100.00% Investment Company Limited Euston Capital Limited Hong Kong HKD1,000 100.00% - 100.00% Investment Ample Gain Capital Ltd Hong Kong HKD1,000 100.00% - 100.00% Investment Vanke Real Estate (Hong Hong Kong HKD15,600,000 100.00% - 100.00% Investment Kong) Company Limited 131 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 19 Principal subsidiaries (continued) Place of Percentage of interest establishment held by the held by the held by a Principal and operation Paid in capital Name of company Group Company subsidiary activities Huizhou Liwan Real Estate Property Huizhou RMB10,000,000 67.00% - 67.00% Company Limited development Huizhou Vanke Property Property Huizhou RMB10,000,000 100.00% - 100.00% Company Limited development Huizhou Vanke Real Estate Property Huizhou RMB10,000,000 100.00% - 100.00% Company Limited development Jiangxi Vanke Yida Property Property Management Company Jiangxi RMB1,000,000 90.00% - 90.00% management Limited Jiangxi Vanke Qingshanhu Property Real Estate Development Jiangxi RMB20,000,000 50.00% 50.00% - development Company Limited (note) Jiangxi Vanke Yida Property Property Development Company Jiangxi RMB20,000,000 50.00% 50.00% - development Limited (note) Kunshan Jiahua Investment Kunshan RMB50,000,000 85.00% - 85.00% Investment Company Limited Nanjing Vanke Property Property Management Company Nanjing RMB4,500,000 100.00% - 100.00% management Limited Nanjing Hengyue Property Property Nanjing RMB10,000,000 100.00% - 100.00% Company Limited development Nanjing Hengbang Real Estate Property Development Company Nanjing USD2,000,000 90.00% - 90.00% development Limited Nanjing Jinyu Blue Property Property Nanjing RMB90,000,000 100.00% - 100.00% Company Limited development Nanjing Vanke Property Property Nanjing RMB150,000,000 100.00% - 100.00% Company Limited development Nanjing Yunjie Real Estate Property Development Company Nanjing RMB10,000,000 100.00% - 100.00% development Limited Nanjing Fuchun East Real Property Estate Devalopment Nanjing USD2,000,000 90.00% - 90.00% development Company Limited Ningbo Jinsheng Property Property Ningbo RMB20,000,000 75.00% - 75.00% Company Limited development Ningbo Vanke Property Property Management Company Ningbo RMB3,000,000 100.00% - 100.00% management Limited Ningbo Vanke Real Estate Property Ningbo RMB150,000,000 100.00% - 100.00% Company Limited development Qingdao Da Shan Real Estate Property Development Company Qingdao RMB100,000,000 60.00% - 60.00% development Limited Qingdao Hao Ren Property Property Qingdao USD18,680,000 55.00% - 55.00% Company Limited development Qingdao Vanke Real Estate Property Qingdao RMB20,000,000 100.00% 100.00% - Company Limited development Qingdao Vanke Yinshengtai Property Real Estate Development Qingdao RMB100,000,000 80.00% 80.00% - development Co., Ltd Shanghai Blue Mountain Property Shanghai RMB10,000,000 100.00% - 100.00% Property Company Limited development Shanghai Boxuan Decoration Decoration and Engineering Company Shanghai RMB5,000,000 100.00% - 100.00% Design Limited 132 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 19 Principal subsidiaries (continued) Place of Percentage of interest establishment held by the held by the held by a Principal and operation Paid in capital Name of company Group Company subsidiary activities Shanghai Hongjun Property Property Management Company Shanghai RMB5,000,000 100.00% - 100.00% Management Limited Shanghai Jiaminglvhua Decoration and Decoration Engineering Shanghai RMB2,000,000 100.00% - 100.00% Design Company Limited. Shanghai Jinchuan Property Property Development Company Shanghai RMB100,000,000 100.00% - 100.00% development Limited Shanghai Jinhua Property Property Development Company Shanghai RMB100,000,000 100.00% - 100.00% development Limited Shanghai Junke Investment Management Company Shanghai RMB350,000,000 100.00% - 100.00% Investment Limited Shanghai Liantu Investment Investment Management and trading and Shanghai RMB1,000,000 100.00% - 100.00% Consultancy Company Consultancy Limited services Shanghai Luolian Property Property Shanghai RMB470,000,000 100.00% - 100.00% Company Limited. development Shanghai Meilanhuafu Property Shanghai RMB700,000,000 100.00% - 100.00% Property Company Limited development Shanghai Vanke Investment Property Management Company Shanghai RMB204,090,000 100.00% 100.00% - development Limited Shanghai Tianyi Property Property Development Company Shanghai RMB50,000,000 90.00% - 90.00% development Limited Shanghai Vanke Baobei Property Shanghai RMB10,000,000 100.00% - 100.00% Property Company Limited development Shanghai Vanke Baonan Property Shanghai RMB10,000,000 100.00% - 100.00% Property Company Limited development Shanghai Vanke Baoshan Property Shanghai RMB50,000,000 100.00% - 100.00% Property Company Limited development Shanghai Hengda Property Property Shareholding Company Shanghai RMB141,348,200 100.00% - 100.00% development Limited Shanghai Vanke Property Property Management Company Shanghai RMB15,000,000 100.00% - 100.00% management Limited Shanghai Vanke Pudong Property Shanghai RMB160,000,000 100.00% - 100.00% Property Company Limited development Shanghai Vanke Real Estate Property Shanghai RMB800,000,000 100.00% - 100.00% Company Limited development Shanghai Vanke Xiangnan Property Shanghai RMB10,000,000 100.00% - 100.00% Property Company Limited development Shanghai Vanke Zhongshi Property Property Company Limited Shanghai RMB20,000,000 50.00% - 50.00% development (note) Shanghai Xiangda Real Estate Property Development Company Shanghai RMB1,783,000,000 75.00% - 75.00% development Limited 133 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 19 Principal subsidiaries (continued) Place of Percentage of interest establishment and held by the held by the held by a Principal Paid in capital Name of company operation Group Company subsidiary activities Shanghai Zhonglin Property Property Development Company Shanghai RMB20,000,000 100.00% - 100.00% development Limited Shanghai Vanke Changning Property Shanghai RMB30,000,000 100.00% - 100.00% Property Company Limited development Shanghai Vanke Xunhui Property Shanghai RMB15,000,000 100.00% - 100.00% Property Company Limited development Shanghai Landa Property Property Shanghai RMB10,000,000 100.00% - 100.00% Company Limited development Shanghai Dijie Property Property Shanghai RMB20,000,000 50.00% - 50.00% Company Limited (note) development Property Shanghai Jingyuan Property development Shanghai RMB31,180,000 55.00% - 55.00% Company Limited and management Shanxi Hualian Property Property Development Company Xi'an RMB367,850,000 51.00% - 51.00% development Limited Shenyang East Property Property Development Company Shenyang RMB10,000,000 80.00% - 80.00% development Limited Shenyang Vanke Property Property Development Company Shenyang RMB10,000,000 75.00% - 75.00% development Limited Shenyang Vanke City Garden Property Development Company Shenyang RMB12,000,000 100.00% - 100.00% development Limited Shenyang Vanke Hunnan Real Property Shenyang RMB10,000,000 100.00% - 100.00% Estate Company Limited development Shenyang Vanke Property Property Management Company Shenyang RMB10,000,000 100.00% - 100.00% management Limited Shenyang Vanke Real Estate Property Development Company Shenyang RMB100,000,000 100.00% 95.00% 5.00% development Limited Shenyang Vanke Wonderland Property Shenyang RMB10,000,000 100.00% - 100.00% Company Limited development Shenyang Vanke Xinshu Property Shenyang USD15,800,000 100.00% - 100.00% Property Company Limited development Shenyang Vanke Jinyu Blue Property Property Development Shenyang RMB578,150,000 100.00% - 100.00% development Company Limited Shenyang Vanke Hunnan Jinyu Property Property Development Shenyang RMB1,022,520,258 100.00% - 100.00% development Company Limited Shenyang Zhengdayongfeng Property Real Estate Development Shenyang RMB8,000,000 100.00% - 100.00% development Company Limited Guangdong Shangcheng Decoration and Construction Company design, Limited Shenzhen RMB20,000,000 100.00% - 100.00% engineering, Property development Shenzhen Daolin Investment Property Development Company Shenzhen RMB20,000,000 100.00% - 100.00% development Limited 134 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 19 Principal subsidiaries (continued) Place of Percentage of interest establishment held by the held by the held by a Principal and operation Paid in capital Name of company Group Company subsidiary activities Shenzhen East Xinyue Property Property Shenzhen RMB10,000,000 100.00% - 100.00% Company Limited development Shenzhen East Zunyu Real Property Shenzhen RMB10,000,000 100.00% - 100.00% Estate Company Limited development Shenzhen Fuchun East (Group) Property Shenzhen RMB14,600,000 90.00% - 90.00% Company Limited development Shenzhen Fuchun East Real Property Shenzhen RMB158,000,000 100.00% - 100.00% Estate Company Limited development Shenzhen Hengda Property Property Shenzhen RMB96,375,000 100.00% - 100.00% Company Limited development Shenzhen Longcheer Yacht Shenzhen RMB57,100,000 100.00% - 100.00% Club Service Club Company Limited Shenzhen Vanke City Real Property Estate Development Shenzhen USD12,100,000 100.00% - 100.00% development Company Limited Shenzhen Vanke City Scenery Property Shenzhen RMB120,000,000 100.00% - 100.00% Property Company Limited development Shenzhen Vanke East Coast Property Property Development Shenzhen RMB10,000,000 100.00% - 100.00% development Company Limited Shenzhen Vanke Real Estate Property Shenzhen RMB600,000,000 100.00% 95.00% 5.00% Company Limited development Shenzhen Vanke East Coast Property Real Estate Development Shenzhen RMB10,000,000 100.00% - 100.00% development Company Limited Investment Shenzhen Vanke Financial trading and Consultancy Company Shenzhen RMB15,000,000 100.00% 95.00% 5.00% consultancy Limited services Shenzhen Vanke Hengfeng Real Property Shenzhen RMB51,871,586 55.00% - 55.00% Estate Company Limited development Shenzhen Vanke Huayu Garden Property Real Estate Development Shenzhen RMB95,909,045 60.00% - 60.00% development Company Limited Shenzhen Vanke Jiuzhou Property Shenzhen RMB10,000,000 90.00% - 90.00% Property Company Limited development Shenzhen Vanke Nancheng Property Real Estate Company Shenzhen RMB10,000,000 90.00% - 90.00% development Limited Shenzhen Vanke Fifth Garden Property Shenzhen RMB200,000,000 100.00% - 100.00% Company Limited development Zhejiang Nandu Property Property Hangzhou RMB300,000,000 100.00% - 100.00% Group Company Limited development Shenzhen Vanke New City Property Shenzhen USD6,250,000 100.00% - 100.00% Property Company Limited development Shenzhen Vanke Property Property Shenzhen RMB80,000,000 100.00% - 100.00% Company Limited development 135 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 19 Principal subsidiaries (continued) Place of Percentage of interest establishment held by the held by the held by a Principal and operation Paid in capital Name of company Group Company subsidiary activities Shenzhen Vanke Property Property Management Company Shenzhen RMB10,000,000 100.00% 95.00% 5.00% management Limited Shenzhen Vanke Xingye Property Shenzhen RMB62,413,230 100.00% - 100.00% Property Company Limited development Shenzhen Vanke Xizhigu Real Property Shenzhen RMB10,000,000 60.00% - 60.00% Estate Company Limited development Shenzhen Wanzhuang Decoration and Decoration Engineering Shenzhen RMB10,000,000 100.00% - 100.00% design Company Limited Shenzhen Yili Real Estate Property Development Company Shenzhen RMB39,000,000 78.40% - 78.40% development Limited Wanxuan Property (Shenzhen) Property Shenzhen USD10,000,000 100.00% - 100.00% Company Limited development Shenzhen Fuchun East Hotel Hotel Shenzhen RMB1,000,000 100.00% - 100.00% Company Limited Investment Suzhou Huihua Investment and Property Suzhou RMB355,000,000 51.00% - 51.00% Property Company Limited development Suzhou Nandu Jianwu Property Suzhou RMB300,000,000 70.00% 70.00% - Company Limited development Suzhou Vanke Property Property Suzhou USD42,500,000 55.00% - 55.00% Company Limited development Jiangsu Sunan Vanke Real Property Suzhou RMB30,000,000 100.00% - 100.00% Estate Company Limited development Suzhou Vanke Zhongliang Property Suzhou RMB230,000,000 51.00% - 51.00% Property Company Limited development Tianjin Binhai Fashion Property Tianjin RMB160,000,000 100.00% - 100.00% Property Company Limited development Tianjin Shangmei Landscape and Decoration Engineering and Tianjin RMB5,000,000 100.00% - 100.00% Engineering Company Design Limited. Tianjin Vanke Property Property Management Company Tianjin RMB10,000,000 100.00% - 100.00% management Limited Tianjin Vanke Real Estate Property Tianjin RMB390,000,000 100.00% - 100.00% Company Limited development Tianjin Vanke Xingye Property Development Company Tianjin RMB60,000,000 100.00% 15.00% 85.00% development Limited Tianjin Vanke Xinhu Property Property Tianjin RMB17,000,000 100.00% 75.00% 25.00% Company Limited development Tianjin Vanke Xinlicheng Property Tianjin RMB230,000,000 55.00% - 55.00% Company Limited development Tianjin Vanke Xinrui Real Property Tianjin RMB120,000,000 100.00% - 100.00% Estate Company Limited development Tianjin Wanbin Real Estate Property Development Company Tianjin RMB140,000,000 100.00% - 100.00% development Limited 136 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 19 Principal subsidiaries (continued) Place of Percentage of interest establishment held by the held by the held by a Principal and operation Paid in capital Name of company Group Company subsidiary activities Tianjin Wanfu Investment Tianjin RMB10,000,000 100.00% - 100.00% Investment Company Limited Tianjin Wanju Decoration Decoration, Engineering Company Tianjin RMB2,000,000 100.00% - 100.00% engineering and Limited design Tianjin Wansheng Investment Tianjin RMB80,000,000 100.00% - 100.00% Investment Company Limited Tianjin Wantai Fashion Property Tianjin RMB200,000,000 96.00% - 96.00% Property Company Limited development Tianjin Wanzhu Investment Tianjin RMB20,000,000 100.00% - 100.00% Investment Company Limited Tianjin Xinfeng Time Investment Company Tianjin RMB10,000,000 80.00% - 80.00% Investment Limited Tianjin Xinghai Real Estate Property Development Company Tianjin RMB15,000,000 55.00% - 55.00% development Limited Tianjin Zhongtian Wanfang Investment Company Tianjin RMB20,000,000 100.00% - 100.00% Investment Limited Wuhan Guohao Property Property Wuhan RMB10,000,000 55.00% - 55.00% Company Limited development Wuhan Vanke Property Property Management Company Wuhan RMB12,000,000 100.00% - 100.00% management Limited Wuhan Vanke Real Estate Property Wuhan RMB150,000,000 100.00% 95.00% 5.00% Company Limited development Wuhan Vanke Tiancheng Real Property Wuhan USD12,100,000 55.00% - 55.00% Estate Co., Ltd development Wuhan Vanke Tianrun Real Property Wuhan USD57,600,000 100.00% - 100.00% Estate Company Limited development Enterprise Wuhan Wanwei Consultancy Wuhan RMB10,000,000 55.00% - 55.00% management Company Limited and consultancy Wuxi Dingan Real Estate Property Wuxi RMB10,000,000 100.00% - 100.00% Company Limited development Wuxi East City Investment Management Company Wuxi USD49,800,000 55.00% - 55.00% Investment Limited Wuxi Vanke Property Property management Company Wuxi RMB3,000,000 100.00% - 100.00% management Limited Wuxi Vanke Real Estate Property Wuxi RMB300,000,000 60.00% 60.00% - Company Limited development Wuxi Vansheng Real Estate Property Development Company Wuxi USD49,200,000 55.00% - 55.00% development Limited Wuxi Xinvan Real Estate Property Wuxi RMB126,000,000 70.00% - 70.00% Company Limited development Xiamen Vanke Real Estate Property Xiamen RMB50,000,000 100.00% - 100.00% Company Limited development Xiamen Hengbang Real Estate Property Development Company Xiamen RMB50,000,000 100.00% - 100.00% development Limited 137 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 19 Principal subsidiaries (continued) Place of Percentage of interest establishment held by the held by the held by a Principal and operation Paid in capital Name of company Group Company subsidiary activities Xiamen Fuchun East Real Property Estate Development Xiamen RMB10,000,000 100.00% - 100.00% development Company Limited Xiamen Vanke Star Property Property Xiamen USD2,333,000 55.00% - 55.00% Company Limited development Xiamen Vanke Property Property Management Company Xiamen RMB3,000,000 100.00% - 100.00% management Limited Xi'an Vanke Cheng'nan Property Xi'an RMB10,000,000 100.00% - 100.00% Property Company Limited development Xi'an Vanke Real Estate Property Xi'an RMB20,000,000 100.00% - 100.00% Company Limited development Xian Vanke Property Property Management Company Xi'an RMB500,000 100.00% - 100.00% management Limited Zhenjiang Rundu Property Property Zhenjiang RMB10,000,000 100.00% - 100.00% Company Limited development Zhenjiang Runnan Property Property Zhenjiang RMB50,000,000 100.00% - 100.00% Company Limited development Zhenjiang Runqiao Property Property Zhenjiang RMB10,000,000 100.00% - 100.00% Company Limited development Zhenjiang Runzhong Property Property Zhenjiang RMB10,000,000 100.00% - 100.00% Company Limited development Zhongshan Vanke Real Estate Property Zhongshan USD12,000,000 100.00% - 100.00% Company Limited development Zhuhai Vanke Property Property Management Company Zhuhai RMB3,000,000 100.00% - 100.00% management Limited Zhuhai Vanke Real Estate Property Zhuhai RMB10,000,000 100.00% - 100.00% Company Limited development Zhuhai Zhubin Property Property Development Company Zhuhai RMB109,000,000 100.00% - 100.00% development Limited Zhuhai Wanmao Real Estate Property Development Company Zhuhai USD33,400,000 55.00% - 55.00% development Limited Note: The directors consider these entities as subsidiaries of the Group as the Group has the power to govern the financial and operating policies of these entities. 138 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 20 Interest in associates Details of the Group’s principal associates at 31 December 2008 are as follows: Percentage of interest Place of held by held by establishment the the held by a Principal Name of company and operation Paid in capital Group Company subsidiary activities Beijing Vanke Consultancy Coporation Company Limited Beijing RMB100,000 20.00% - 20.00% consultation Shanghai Zhongfang Binjiang Real Property Estate Company Limited Shanghai RMB200,000,000 25.00% - 25.00% development Wuhan Golf City Gardern Real Property Estate Company Limited (note) Wuhan RMB219,000,000 15.00% - 15.00% development Shanghai Nandu White Horse Real Property Estate Company Limited (note) Shanghai RMB27,000,000 15.00% - 15.00% development Chengdu Yihang Vanke Binjiang Property Real Estate Company Limited development (note) Chengdu RMB50,000,000 15.00% - 15.00% Hefei Yihang Vanke Real Estate Property Company Limited Hefei RMB101,500,000 29.60% - 50.00% development Suzhou Yihang Vanke Changfeng Property Real Estate Company Limited Suzhou RMB200,000,000 21.60% - 21.60% development Shenyang Vanke Yucheng Real Property Estate Company Limited Shenyang RMB197,235,443 40.00% - 20.00% development Beihai Wanda Real Estate Company Property Limited Beihai RMB20,000,000 40.00% - 40.00% development Hangzhou Star Real Estate Property Company Limited Hangzhou RMB50,000,000 20.00% - 20.00% development Changsha Oriental City Real Property Esteate Company Limited Changsha RMB20,000,000 20.00% - 20.00% development Dongguan Vanke Real Estate Property Company Limited Dongguan RMB83,000,000 20.00% - 20.00% development Shanghai Wansheng Real Estate Property Company Limited Shanghai RMB5,737,400 50.00% - 50.00% management Shanghai Zunyi Property Property Management Company Limited Shanghai RMB3,000,000 30.00% - 30.00% management Note: Except for the 15% equity interest held directly, the Group also hold 34% effective equity interest in these associates through a jointly controlled entity. Summary financial information on associates: Equity attributable Assets Liabilities to parent Revenue Profit 2008 100 per cent 7,312,096,864 5,435,615,027 1,876,481,837 2,283,305,003 601,706,907 Group’s effective interest 2,963,597,886 2,455,422,698 508,175,188 818,977,888 219,115,497 2007 100 per cent 4,873,668,959 3,697,864,128 1,175,804,831 1,318,506,302 112,793,690 Group’s effective interest 1,182,771,493 856,338,269 326,433,224 155,688,655 67,528,929 139 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 21 Interest in jointly controlled entities Details of the Group’s principal jointly controlled entities at 31 December 2008 are as follows: Percentage of interest Place of establishment held by the held by the held by a Principal Name of company and operation Paid in capital Group Company subsidiary activities Shenyang Yong Da Property Company Property Limited Shenyang RMB93,431,369 49.00% - 49% development Hangzhou Song City Property Company Property Limited Hangzhou RMB130,000,000 50.00% - 50% development Shanghai Jialai Real Estate Property Development Company Limited Shanghai RMB180,000,000 49.00% - 49.00% development Property Yihang Vanke Company Limited Beijing RMB1,000,000,000 40.00% 40.00% - development Shenyang Vanke Shengbao Consultancy Corporation Company Limited Shenyang RMB1,048,763 20.00% - 20.00% consultation Dongguan Xintong Industry Company Property Limited Dongguan RMB10,000,000 38.61% - 38.61% development Dongguan Vanke Property Company Property limited Dongguan RMB83,000,000, 50.00% - 50.00% development Dalian Vanke Charming City Property Property Development Company Limited Dalian RMB 340,000,000 5.00% - 50.00% development Wuhan Vanke Qinganju Property Property Development Limited Wuhan RMB100,000,000 100.00% - 100.00% development Summary financial information on jointly controlled entities – Group’s effective interest 2008 2007 Non-current assets 374,540,476 1,607,296,471 Current assets 3,360,015,120 1,742,123,381 Non-current liabilities (19,600,000) (134,750,000) Current liabilities (1,826,146,436) (1,183,146,652) Net assets 1,888,809,160 2,031,523,200 Income 466,170,606 748,320,241 Expenses (475,550,240) (687,205,803) (Loss)/profit for the year (9,379,634) 61,114,438 140 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 22 Other non-current financial assets 2008 2007 Available-for-sale securities in the PRC Equity securities - Unlisted 88,740,921 80,652,742 - Listed in the PRC 84,559,813 191,693,489 Debt securities - Unlisted 82,858,082 297,150,625 256,158,816 569,496,856 23 Deferred tax assets / liabilities (a) Deferred tax assets Deferred tax assets are attributable to the items detailed as follows: 2008 2007 Tax losses 141,925,456 83,965,345 Impairment loss of trade and other receivables 8,323,552 10,514,732 Provision for diminution in value of properties 309,492,273 3,642,693 Accruals for construction costs 175,160,001 40,794,813 Accrual for Land Appreciation Tax 784,818,610 448,132,382 Other temporary differences 29,760,741 17,007,454 1,449,480,633 604,057,419 Movements in deferred tax assets: 2008 2007 At 1 January 604,057,419 233,532,009 Transferred to consolidated income statement 845,423,214 370,525,410 At 31 December 1,449,480,633 604,057,419 141 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 23 Deferred tax assets / liabilities (continued) (a) Deferred tax assets (continued) Deferred tax assets have not been recognised in respect of the following items: 2008 2007 Tax losses 917,582,959 490,003,006 Other temporary differences 148,199,000 144,410,980 1,065,781,959 634,413,986 The tax losses expire between 2009 and 2013. The deductible temporary differences will not expire under current the tax legislation. The above deferred tax assets have not been recognised because it is not probable that future taxable profit will be available against which the Group can utilise the benefits therefrom. (b) Deferred tax liabilities Deferred tax liabilities are attributable to the items detailed as follows: 2008 2007 Fair value adjustments on available-for-sale securities 10,545,770 29,652,390 Fair value adjustments arising from business combinations 1,369,941,857 1,537,408,063 1,380,487,627 1,567,060,453 Movements in deferred tax liabilities: 2008 2007 At 1 January 1,567,060,453 1,292,534,798 Recognised in equity (note 13(b)) (19,106,620) 21,981,456 Arising from business combinations - 586,748,704 Transfer out upon disposals of subsidiaries - (105,209,510) Transferred to consolidated income statement (167,466,206) (228,994,995) At 31 December 1,380,487,627 1,567,060,453 142 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 24 Inventories 2008 2007 Raw materials 48,111,356 51,135,271 Finished goods - 12,613,487 48,111,356 63,748,758 Inventories recognised as cost of sales for the year 16,309,805 6,783,183 25 Properties held for development, properties under development and completed properties for sale (a) The analysis of carrying value of land held for property development for sale is as follows: 2008 2007 With lease term of 50 years or more 54,737,002,663 40,531,359,746 With lease term of less than 50 years 3,906,402,115 1,936,608,577 58,643,404,778 42,467,968,323 (b) The analysis of the amount of completed properties for sale recognised as an expense is as follows: 2008 2007 Carrying amount of properties sold 24,653,484,452 20,166,448,835 Write down of properties 1,230,561,038 1,650,543 Reversal of write-down of properties (1,436,701) (198,238) 25,882,608,789 20,167,901,140 The reversal of write-down of properties made in prior years arose due to an increase in the estimated net realisable value of certain completed properties as a result of recovery in certain regional property markets. (c) Included in properties held for development, property under development and completed properties for sale an amount of RMB34,131 million (2007: RMB27,878 million) is not expected to be recovered within one year. 143 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 26 Trade and other receivables 2008 2007 Debtors and other receivables 2,943,528,935 2,349,890,069 Less: allowance for doubtful debts (141,023,757) (104,140,223) 2,802,505,178 2,245,749,846 -------------------- -------------------- Amount due from associates and jointly controlled entities 1,617,804,867 1,384,754,138 Less: allowance for doubtful debts (1,438,296) (1,564,102) 1,616,366,571 1,383,190,036 -------------------- -------------------- Prepaid taxes 837,140,813 581,894,379 -------------------- -------------------- Deposits and prepayments 3,160,518,999 8,284,197,850 -------------------- -------------------- 8,416,531,561 12,495,032,111 Note: Deposits and prepayments represent deposits paid for purchasing properties held for development and prepayments to contractors for constructions. The Group’s credit policy is set out in note 39(b). All of the trade and other receivables, apart from deposits of RMB658 million (2007: RMB250 million) are expected to be recovered within one year. Apart from the amounts due from associates of RMB314 million (2007: RMB412 million) which are interest bearing at market interest rate, amounts due from associates and jointly controlled entities are interest free, unsecured and have no fixed terms of repayment. The interest income received from associates during the year amounted to RMB27 million (2007: RMB11 million). Deposits and prepayments mainly represented tendering deposits for acquisitions of land and prepayment for land and development costs of projects undertaken by the Group. Impairment of trade debtors and other receivables Impairment losses in respect of trade debtors and other receivables are recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against trade debtors and bills receivable directly. The movements in the allowance for specific doubtful debts during the year are as follows: 2008 2007 At 1 January 105,704,325 79,465,102 Impairment loss recognised 37,552,195 17,263,680 Provision arising on business combinatons - 9,364,654 Uncollectible amounts written off (794,467) (389,111) At 31 December 142,462,053 105,704,325 144 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 26 Trade and other receivables (continued) Impairment of trade debtors and other receivables (continued) At 31 December 2008, the Group’s trade debtors and other receivables of RMB142 million, (2007: RMB106 million) were individually determined to be impaired. The individually impaired receivables related to customers that were in financial difficulties and management assessed that only a portion of the receivables is expected to be recovered. Consequently, specific allowances for doubtful debts of RMB142 million (2007: RMB106 million) were recognised. The Group does not hold any collateral over these balances. Trade debtors and other receivable that are not impaired The ageing analysis of trade debtors and other receivables that are neither individually nor collectively considered to be impaired are as follows: 2008 2007 Neither past due nor impaired 4,294,160,423 3,460,443,799 Less than 1 year past due 124,711,326 62,791,758 4,418,871,749 3,523,235,557 Receivables that were neither past due nor impaired relate to a wide range of customers for whom there was no recent history of default. Receivables that were past due but not impaired relate to a number of independent debtors that have a good track record with the Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group does not hold any collateral over these balances. 27 Cash and cash equivalents Cash and cash equivalents consist of cash on hand and balances with banks. The balance includes deposits with banks of RMB8 million (2007: RMB10 million) with restriction for designated purposes. 145 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 28 Share capital 2008 2007 Number of Nominal Number of Nominal shares value shares value Registered, issued and fully paid: A shares of RMB1 each 9,680,254,750 9,680,254,750 6,050,159,219 6,050,159,219 B shares of RMB1 each 1,314,955,468 1,314,955,468 821,847,168 821,847,168 10,995,210,218 10,995,210,218 6,872,006,387 6,872,006,387 The holders of A and B share are entitled to receive dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. A summary of the movements in the Company’s share capital during the year is as follows: Issued share capital A shares B shares Total At 1 January 2007 3,822,000,639 547,898,112 4,369,898,751 Issue of shares upon placing (note) 317,158,261 - 317,158,261 Capitalisation of share premium (note 29(a)) 1,911,000,319 273,949,056 2,184,949,375 At 31 December 2007 6,050,159,219 821,847,168 6,872,006,387 At 1 January 2008 6,050,159,219 821,847,168 6,872,006,387 Capitalisation of share premium (note 29(a)) 3,630,095,531 493,108,300 4,123,203,831 At 31 December 2008 9,680,254,750 1,314,955,468 10,995,210,218 Note: Issue of shares upon placing During the year ended 31 December 2007, 317,158,261 A shares were issued and placed to certain institutional investors at a subscription price of RMB31.53 per share. 146 Financial s 29 Reserves Employee Capital Foreign share-based reserve arising exchange Statutory compensation Revaluation from stepped Share premium reserve reserves reserve reserve acquisitions (note (a)) (note (b)) (note (c)) (note (d)) At 1 January 2008 12,949,848,236 147,798,941 5,395,470,156 453,690,000 134,801,554 (241,332,344) Equity settled share- based transactions (note 35) - - - 494,987,500 - - Adjustment for equity settled share-based transactions - - - (259,987,500) - - Distribution of the Awarded Shares (note 35(a)(vi)) - - - (215,463,933) - - Profit for the year - - - - - - Transfer of retained profits - - 1,186,514,822 - - - ( Adjustment on translation of foreign subsidiaries - 129,508,819 - - - - Change in fair value of available-for-sale securities, net of deferred tax of RMB19,106,620 - - - - (90,154,429) - Capitalisation of share premium (4,123,203,831) - - - - - Dividend declared-2008 (note 15) - - - - - - At 31 December 2008 8,826,644,405 277,307,760 6,581,984,978 473,226,067 44,647,125 (241,332,344) 147 Financial s 29 Reserves (continued) Employee Capital Foreign share-based reserve arising exchange Statutory compensation Revaluation from stepped Share premium reserve reserves reserve reserve acquisitions (note (a)) (note (b)) (note (c)) (note (d)) At 1 January 2007 5,515,354,171 10,068,656 4,402,087,927 80,570,000 43,265,034 (178,732,940) Equity settled share-based transactions (note 35) - - - 373,120,000 - - Placing of A shares (note 28(i)) 9,682,841,739 - - - - - Share issuance costs (63,398,299) - - - - - Profit for the year - - - - - - Transfer from retained profits - - 993,382,229 - - - Adjustment on translation of foreign subsidiaries - 137,730,285 - - - - Fair value adjustments arising from stepped acquisitions of interest in subsidiaries - - - - - (62,599,404) Change in fair value of available-for-sale securities, net of deferred tax of RMB21,981,456 - - - - 91,536,520 - Capitalisation of share premium (2,184,949,375) - - - - - Dividend declared-2006 (note 15) - - - - - - Dividend reinvested in the Employees’ Share Award Scheme (note 35) - - - - - - At 31 December 2007 12,949,848,236 147,798,941 5,395,470,156 453,690,000 134,801,554 (241,332,344) 148 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 29 Reserves (continued) Notes: (a) Share premium During the year ended 31 December 2008, the Company issued 4,123,203,831 shares (2007: 2,184,949,375 shares) with a par value of RMB1 each to all shareholders in the ratio of 6 shares for every 10 shares held (2007: in the ratio of 5 shares for every 10 shares held) as recorded in the register of shareholders on 13 June 2008 (2007: 29 Augest 2007) upon capitalisation of share premium. (b) Statutory reserves Statutory reserves include the following items: (i) Statutory surplus reserve According to the PRC Company Law, the Company is required to transfer 10% of its profit after taxation, as determined under PRC Accounting Regulations, to statutory surplus reserve until the reserve balance reaches 50% of the registered capital. The transfer to this reserve must be made before distribution of a dividend to shareholders. Statutory surplus reserve can be used to make good previous years’ losses, if any, and may be converted into share capital by the issue of new shares to equity shareholders in proportion to their existing shareholdings or by increasing the par value of the shares currently held by them, provided that the balance after such issue is not less than 25% of the registered capital. For the year ended 31 December 2008, the Company transferred RMB158,201,976 (2007: RMB172,762,126), being 10% of the Company’s current year’s net profit as determined in according with the PRC Accounting Rules and Regulations, to this reserve. (ii) Discretionary surplus reserve The appropriation to the discretionary surplus reserve is subject to the shareholders’ approval. The utilisation of the reserve is similar to that of the statutory surplus reserve. For the year ended 31 December 2008, the directors proposed to transfer RMB1,028,312,846 (2007: RMB820,620,103), being 65% (2007: 47.5%) of the Company’s current year’s net profit as determined in accordance with the PRC Accounting Rules and Regulations, to this reserve. 149 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 29 Reserves (continued) Notes (continued): (c) Employee share-based compensation reserve Employee share-based compensation reserve comprises the fair value of the shares awarded under the Employees’ Share Award Scheme (see note 35) to the employees of the Company recognised in accordance with the accounting policy adopted for equity compensation benefits in note 3(n)(ii). During the year ended 31 December 2008, equity-based employee benefits of RMB 494,987,500 charged to the consolidated income statement and with the corresponding amount credited to the reserve, RMB235,000,000 of which was related to the 2007 Scheme and the remaining RMB259,987,500 was related to the 2008 Scheme. On 30 September 2008, the equity-based employee benefits of RMB258,138,750 in respect of the 2008 Scheme was reversed as the directors subsequently considered that the 2008 Scheme’s non-market performance condition of over 15% year-to-year profit growth was unlikely to be achieved. (d) Revaluation reserve Revaluation reserve comprises the cumulative net change in fair value of available-for-sale securities held at the balance sheet date and is dealt with in accordance with the accounting policy in note 3(c)(i). 150 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 29 Reserves (continued) Notes (continued): (e) Capital management The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, by pricing its properties commensurately with the level of risk and by securing access to finance at a reasonable cost. The Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in the light of changes in economic conditions. During 2008, the Group’s strategy, which was unchanged from 2007, was to maintain the total debt to total asset ratio at around 60%. In order to maintain the ratio, the Group may adjust the amount of dividends payable to shareholders, issue new shares, issue convertible bonds or raise new debt financing. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. 30 Minority interests 2008 2007 At 1 January 4,640,875,428 2,524,955,811 Profit attributable to minority interests for the year 606,699,125 473,265,324 Capital injections from minority interests of subsidiaries 695,603,280 2,018,703,898 Dividends paid to minority interests (204,651,502) (139,091,005) Minority interests arising from acquisitions of non-wholly owned subsidiaries 560,417,984 216,799,086 Acquisitions of minority interests (122,028,497) (453,757,686) Increase in minority interests resulting from disposal of partial interest in a subsidiary 839,030,034 - Decrease in minority interests resulting from change of a non-wholly owned subsidiary to a jointly controlled entity (19,882,996) - Decrease in minority interests resulting from liquidation of subsidiaries (65,009,125) - Others (4,429,512) - At 31 December 6,926,624,219 4,640,875,428 151 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 31 Interest-bearing borrowings and bonds This note provides information about the contractual terms of the Group’s interest-bearing borrowings and bonds. For more information about the Group’s exposure to interest rate and foreign exchange risks, please refer to note 39. 2008 2007 Non-current Secured or guaranteed - bank loans (note (a)) 1,553,110,000 1,387,163,655 - corporate bonds (note (b)) 2,894,365,250 - -------------------- -------------------- 4,447,475,250 1,387,163,655 -------------------- -------------------- Unsecured - bank loans (note (a)) 7,621,010,095 7,687,026,185 - corporate bonds (note (b)) 2,873,650,747 - - other borrowings (note (c)) - 7,287,890,000 10,494,660,842 14,974,916,185 -------------------- -------------------- 14,942,136,092 16,362,079,840 At 31 December 2008, non-current interest-bearing borrowings and bonds were repayable as follows: 2008 2007 After 1 year but within 2 years 7,876,887,677 14,084,944,887 After 2 years but within 5 years 7,065,248,415 2,277,134,953 14,942,136,092 16,362,079,840 2008 2007 Current Secured - bank loans (note (a)) 60,000,000 69,600,000 - current portion of long term bank loans (note (a)) 363,995,220 536,939,550 - other borrowings (note (c)) 120,000,000 - 543,995,220 606,539,550 -------------------- -------------------- Unsecured - bank loans (note (a)) 190,000,000 1,035,250,000 - current portion of long term bank loans (note (a)) 5,792,489,356 6,054,077,354 - other borrowings (note (c)) 4,351,968,334 - - current portion of long term other borrowings 6,987,890,000 897,660,000 17,322,347,690 7,986,987,354 -------------------- -------------------- 17,866,342,910 8,593,526,904 152 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 31 Interest-bearing borrowings and bonds (continued) Notes: (a)Bank loans The secured bank loans of RMB2,669 million as at 31 December 2008 (2007: RMB1,994 million) are secured over certain properties held for development and properties under development with aggregate carrying value of RMB2,630 million (2007: RMB2,082 million), the Group’s interests in certain subsidiaries with total net asset value of RMB167 million (2007: RMB117 million). Included in secured bank loans as at 31 December 2008 is an amount of RMB Nil (2007: RMB380 million) which is pledged by certain assets of a minority shareholder. The interest rate of bank loans ranges from 4.86% to 10.00% in 2008 (2007: from 4% to 8.76%). (b) Corporate bonds 2008 ——————————————— No.101688 No.101699 Corporate bonds Corporate bonds issued in 2008 issued in 2008 Proceeds from issue of corporate bonds of RMB100 each 2,900,000,000 3,000,000,000 Transaction costs (28,271,731) (111,746,619) Net proceeds 2,871,728,269 2,888,253,381 Transaction costs amortised 1,922,478 6,111,869 Carrying value at 31 December 2,873,650,747 2,894,365,250 On 6 September 2008, the Company issued two series of corporate bonds, namely the “No. 101688 Bonds” and the “No. 101699 Bonds”, amounting to RMB5,900 million. Both Bonds are listed on the Shenzhen Stock Exchange. The No. 101688 Bonds are with no guarantee and are interests bearing at a rate of 7% per annum payable in arrears on 6 September 2009, 2010 and 2011. In accordance with the terms of the No. 101688 Bonds, on 6 September 2011 the Company has the option to adjust upward the interest rate of the Bonds for the next two years by 0-100 points and each of the Bond is, at the option of the bondholder, redeemable at its par value of RMB 100 each on the same date. If not being redeemed on 6 September 2011, the Bonds are repayable on 6 September 2013 and the interest for the next two years is payable in arrear on 6 September 2012 and 2013 respectively. The No. 101699 Bonds are guaranteed by the China Construction Bank Shenzhen branch and are repayable on 6 September 2013. The Bonds are interest bearing at a rate of 5.5% per annum payable in arrears on 6 September 2009, 2010, 2011, 2012 and 2013 respectively. 153 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 31 Interest-bearing borrowings and bonds (continued) Notes: (continued) (c) Other borrowings 2008 2007 Non-current Proceeds - 7,427,859,800 Transaction costs - (139,969,800) - 7,287,890,000 -------------------- --------------------- Current Proceeds 4,520,000,000 - Transaction costs (48,031,666) - 4,471,968,334 - Other borrowings represent interest bearing borrowings raised from third party lenders through trust companies at market interest rate. The interest rate of other borrowings ranges from 4.86% to 10% in 2008 (2007: 4% to 8.76%). The secured other borrowings of RMB120 million as at 31 December 2008 are secured over certain properties held for development and properties under development with aggregate carrying value of RMB370 million. 32 Other long term liabilities Other long term liabilities at 31 December 2008 and 2007 mainly represented consideration payable in connection with acquisitions of subsidiaries and was due for settlement by instalments in 2010 and 2009 respectively. 33 Trade and other payables 2008 2007 Trade payable 12,895,962,837 9,700,852,026 Amounts due to associates 21,277,927 59,828,480 Amounts due to jointly controlled entities 841,977,518 303,411,587 Deposits received in advance 23,945,755,140 21,622,747,401 Other payables and accrued expenses 6,225,573,623 5,541,778,180 Other taxes 48,660,688 17,810,352 Total 43,979,207,733 37,246,428,026 All of the trade and other payables, except for retention moneys of RMB213 million (2007: RMB355 million), are expected to be settled within one year. 154 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 34 Provisions 2008 2007 Balance at 1 January 37,962,953 31,677,271 Provisions made during the year 8,300,215 8,118,984 Provisions used during the year (4,533,700) (1,833,302) Balance at 31 December 41,729,468 37,962,953 The balance represents the estimated losses to be borne by the Group in relation to the property management projects. 35 Employees’ share award scheme Pursuant to a shareholders’ resolution passed on 30 May 2006, the Company adopted an Employees’ Share Award Scheme (the “Scheme”) for each of the years ended 31 December 2006, 2007 and 2008 under which certain employees of the Group, including certain directors of the Company, will be entitled to certain A shares of the Company if the vesting conditions as set out in the Scheme are met. Background of the Scheme Under the Scheme, the Company made an initial contribution to an independently- administrated trust for each of the years ended 31 December 2006, 2007 and 2008 based on certain historical performance indicators of the Group in the respective year (“Year 0”). The trust then purchased the Awarded Shares from the Shenzhen Stock Exchange and holds the Awarded Shares under trust. The final amount to be contributed to the trust for each year’s scheme depends on the financial performance of the Group for Year 0 as compared with that of the year before the Year 0 (as determined under the PRC Accounting Regulations) and is determined as follows: - if the growth rate of the audited net profit is less than or equal to 15%, no contribution is required. - if the growth rate of the audited net profit for the respective year is more than 15% but less than or equal to 30%, the total contribution equals to the net profit incremental multiplied by the growth rate. - if the growth rate of the audited net profit is more than 30%, the total contribution equals to the net profit incremental multiplied by 30%. Pursuant to the Scheme, the total contribution to the trust for each year’s scheme will not exceed 10% of the net profit for Year 0. 155 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 35 Employees’ share award scheme (continued) Background of the Scheme (continued) Duration of the vesting period depends on the market price of the Company’s A shares in Year 0 through two years after Year 0 (“Year 2”). When the average closing price of Company’s A shares in the year after Year 0 (expressed as “Year 1” below) is higher than that in Year 0, the Scheme is vested and the trust is required to distribute the Awarded Shares to the designated employees in Year 2. When the average closing price of the Company’s A shares in Year 1 is lower than that in Year 0, the vesting period is extended to 31 December of Year 2 whereby the Scheme is vested when the average closing price of the Company’s A shares in Year 2 is higher than that in both Year 0 and Year 1. In the circumstances, the trust is required to distribute the Awarded Shares to the designated employees in the year after Year 2. Otherwise, the trust is terminated and the Awarded Shares will be resold in the Shenzhen Stock Exchange and the proceeds be refunded to the Company. (a) Details of the Awarded Shares purchased by the trust under the Scheme are as follows: Scheme for the year ended Scheme for the year ended Scheme for the year ended 31 December 2008 31 December 2007 31 December 2006 (The 2008 Scheme) (The 2007 Scheme) (The 2006 Scheme) Total Number of Aggregate Number of Aggregate Number of Aggregate Number of Aggregate shares amount shares amount shares amount shares amount purchased paid purchased paid purchased paid purchased paid At 1 January 2007 - - - - 25,452,018 145,444,012 25,452,018 145,444,012 Purchased through the trust (note i) - - 11,412,445 241,282,950 3,519,682 73,756,963 14,932,127 315,039,913 New shares through bonus issue (note ii) - - 5,706,223 - 14,485,850 - 20,192,073 - Dividend reinvested through the trust (note iii) - - 110,800 1,711,866 282,700 4,345,755 393,500 6,057,621 At 31 December 2007 - - 17,229,468 242,994,816 43,740,250 223,546,730 60,969,718 466,541,546 At 1 January 2008 - - 17,229,468 242,994,816 43,740,250 223,546,730 60,969,718 466,541,546 Purchased through the trust (note iv) 37,804,258 763,905,518 11,533,195 243,140,600 - - 49,337,453 1,007,046,118 New shares through bonus issue (note v) 22,682,555 - 17,257,598 - 17,282,420 - 57,222,573 - Dividend reinvested through the trust 439,007 - 321,500 - 424,700 - 1,185,207 - Distribution of Awared - - - - (61,447,370) (223,546,730) (61,447,370) (223,546,730) Shares (note vi) At 31 December 2008 60,925,820 763,905,518 46,341,761 486,135,416 - - 107,267,581 1,250,040,934 156 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 35 Employees’ share award scheme (continued) (a) Details of the Awarded Shares purchased by the trust under the Scheme are as follows: (continued) Note: (i) On 11 May 2007, the Company made an additional contribution of RMB73,756,963 to the 2006 Scheme and the trust acquired 3,519,682 A shares of the Company. On the same day, the Company made a first contribution of RMB241,282,950 to the 2007 Scheme and the trust acquired 11,412,445 A shares of the Company. (ii) On 29 August 2007, the Company issued new A shares out of the share premium in the ratio 10:5 to all equity shareholders. Accordingly, additional 14,485,850 and 5,706,223 A shares were issued to the 2006 and 2007 Schemes respectively. (iii) On 16 May 2007, the Company paid a cash dividend of RMB0.15 per share resulting in a total dividend received by the trust of RMB4,345,755 and RMB1,711,866 for the 2006 and 2007 Schemes respectively. Pursuant to the Schemes, the trust acquired an additional 282,700 and 110,800 A Shares for the 2006 and 2007 Schemes respectively. (iv) On 2 June 2008, the Company made an additional contribution of RMB243,140,600 to the 2007 Scheme and the trust acquired 11,533,195 A shares of the Compay. On the same day, the Company made a first contribution of RMB763,905,518 to the 2008 Scheme and the trust acquired 37,804,258 A shares of the Company. (v) On 16 June 2008, the Company issued new A shares out of the share premium in the ratio 10:6 to all equity shareholders. Accordingly, additional 22,682,555, 17,257,598 and 17,282,420 A shares were issued to the 2008, 2007 and 2006 Schemes respectively. (vi) Pursuant to the 2006 Scheme, on 13 September 2008, the trust distributed 61,447,370 A shares under the 2006 Scheme to the eligible employees upon vesting of the 2006 Scheme. During the year ended 31 December 2008, equity-based employee benefits charged to the consolidated income statement and credited to reserve amounted to RMB235,000,000 (note 29), which was related to the 2007 Scheme. Had all the Awarded Shares in respect of the 2007 Scheme been fully vested on 31 December 2008, the theoretical benefits of the employees based on the A Share’s closing price of RMB6.45 per share on that date would have been RMB298,904,358. No equity-based employee benefits was charged to the consolidated income statement as the directors considered that the non-market performance condition of the 2008 Scheme was unlikely to be achieved (see note 29(c)). 157 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 35 Employees’ share award scheme (continued) (b) Fair value of the Scheme and assumptions The fair value of the services received in return for the Awarded Scheme granted is measured by reference to the fair value of the Awarded Shares granted under the Scheme. The estimate of the fair value of the Awarded Shares of the 2008 Scheme is measured based on a Monte- Carlo option pricing model with the following key input assumptions at its grant date of 1 January 2008: The 2008 Scheme A Share’s price at grant date (per share) R M B 2 9 . 1 9 Expected volatility 54.18% Expected rate of return 29.38% Expected vesting period 2 4 m o n t h s Fair value of the Awarded Shares at grant date R M B 6 9 3 , 3 0 0 , 0 0 0 The directors consider that changes in the subjective input assumptions could materially affect the fair value estimate. 36 Material related party transactions (a) Reference should be made to the following notes regarding related parties: Associates (note 20) Jointly controlled entities (note 21) Key management personnel (see note (b) below) Post-employment benefit plans (note 11) (b) Key management personnel compensations The key management personnel compensations are as follows: 2008 2007 Short-term employee benefits 27,252,500 81,435,919 27,252,500 81,435,919 The above compensations are included in “personnel expenses” (see note 11). In addition, all the key management personnel are participants of the Employees’ Share Award Scheme of the Group (see note 35). Save for the above, the Group also provides non-monetary employee benefits to the key management personnel in the form of purchase discount on sale of the Group’s properties to the key management personnel. Details of such transactions are as follows: 158 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 36 Material related party transactions (b) Key management personnel compensations (continued) 2008 2007 Sales of properties to the key management personnel 1,217,125 2,754,762 Related cost of sales (1,001,353) (1,988,808) Gross profit 215,772 765,954 Estimated fair value of the properties sold to the key management personnel 1,857,125 4,104,762 All the above were approved by the Board of Directors as a kind of employment benefits to the key management personnel. Apart from the above, during the year, certain key management personnel purchased properties from the Group at market price with total value of RMB1,217,125 (2007: RMB2,754,762). 37 Commitments (a) Commitments outstanding at 31 December not provided for in the financial statements were as follows: 2008 2007 Contracted for 23,202,031,151 14,046,463,000 Commitments mainly related to land and development costs for the Group’s properties under development. (b) At 31 December 2008, the total future minimum lease payments under non-cancellable operating leases are payable as follows: 2008 2007 Within 1 year 32,497,446 32,253,028 After 1 year but within 2 years 20,784,514 26,628,049 After 2 year but within 5 years 30,333,962 28,840,987 After 5 years 4,735,353 2,936,318 88,351,275 90,658,382 The Group is the lessee in respect of a number of properties held under operating leases. The leases typically run for an initial period of two to ten years. None of the leases includes contingent rentals. During the year, the operating lease expense of the Group amounted to RMB41 million (2007: RMB44 million). 159 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 38 Contingent liabilities (i) As at the balance sheet date, the Group has issued guarantees to banks to secure the mortgage arrangement of property buyers. The outstanding guarantees to the banks amounted to RMB17,969 million (2007: RMB16,958 million), including guarantees of RMB17,452 million (2007: RMB16,297 million) which will be terminated upon the completion of the transfer procedures with the buyers in respect of the legal title of the properties, and guarantees of RMB517 million (2007: RMB661 million) which will be terminated upon full repayment of mortgage loans by buyers to the banks. The directors do not consider it probable that the Group will sustain a loss under these guarantees as the bank has the rights to sell the property and recover the outstanding loan balance from the sale proceeds if the property buyers default payment. The Group has not recognised any deferred income in respect of these guarantees as its fair value is considered to be minimal by the directors. (ii) As at 31 December 2008, a subsidiary of the Group was sued by a contractor for repayment of deposit paid and construction cost payable, which amounted to RMB39 million, plus accrual of interest thereon. The relevant PRC court has yet to decide on the case. The directors do not consider it probable that the Group will sustain a compensation loss in this respect. 39 Financial risk management Exposure to interest rate, credit, liquidity, and currency risks arises in the normal course of the Group’s business. The risks are limited by the Group’s financial management policies and practices described below. (a) Interest rate risk The Group’s interest rate risk arises primarily from its borrowings and bonds. Borrowings and bonds issued at variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The interest rate and terms of repayment of bank loans, borrowings and bonds of the Group are disclosed in note 31 to the financial statements. At 31 December 2008, it is estimated that a general increase of 0.5% in interest rates, with all other variables held constant, would decrease the Group’s profit after tax by approximately RMB48,754,734 (2007: RMB61,886,054). The sensitivity analysis above has been determined assuming that the change in interest rates had occurred at the balance sheet date and had been applied to the exposure to interest rate risk for non-derivative financial instruments in existence at that date. The analysis is performed on the same basis for 2007. 160 China Vanke Co., Ltd. Financial statements for the year ended 31 December 2008 39 Financial risk management (continued) (b) Credit risk The Group’s credit risk is primarily attributable to trade and other receivables and other financial assets. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis. In respect of trade receivables, credit risk is minimised as the Group normally receives full payment from buyers before the transfer of property ownership. In respect of other receivables and other financial assets, the Group reviews the exposures and closely monitors the recoverability of the balances on an ongoing basis. Normally, the Group does not obtain collateral from debtors. The impairment losses on bad and doubtful accounts are within management’s expectation. (c) Liquidity risk The Group’s policy is to regularly monitor current and expected liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer terms. 161 Financial s 39 Financial risk management (continued) (c) Liquidity risk (continued) The following table details the remaining contractual maturities at the balance sheet date of the Group’s which are based on contractual undiscounted cash flows (including interest payments computed using contr rates current at the balance sheet date) and the earliest date the Group can be required to pay: 2008 Total contractual More than 1 y Carrying amount undiscounted cash Within 1 year or on demand than 2 y flow Interest-bearing borrowings 27,040,463,005 28,614,049,859 18,958,810,394 8,3 Corporate bonds 5,768,015,997 7,614,880,000 368,000,000 3 Creditors and accrued charges 19,121,536,460 19,121,536,460 19,121,536,460 Amounts due to jointly controlled entities and associates 863,255,445 863,255,445 863,255,445 Other long term liabilities 12,644,850 12,644,850 - 2007 Total contractual More than 1 y Carrying amount undiscounted cash Within 1 year or on demand than 2 flow Interest-bearing borrowings 24,955,606,744 26,588,466,696 9,145,353,513 15,0 Creditors and accrued charges 15,242,630,206 15,242,630,206 14,887,630,206 3 Amounts due to jointly controlled and entities and associates 363,240,067 363,240,067 363,240,067 Other long term liabilities 9,913,831 9,913,831 - 162 China Vanke Co., Ltd. Year ended 31 December 2008 39 Financial risk management (continued) (d) Foreign exchange risk The Group is exposed to foreign currency risk primarily on borrowings that are denominated in a currency other than the functional currency of the operations to which they relate. The currencies giving rise to this risk are primarily United States dollars and Hong Kong dollars. Cash and cash equivalents denominated in a currency other than the functional currency of the entity to which they relate are as follows: 2008 2007 United States Dollars USD 420,141,957 USD 625,148,050 Hong Kong Dollars HKD 7,049,434 HKD 11,294,204 Interest-bearing borrowings denominated in a currency other than the functional currency of the entity to which they relate are as follows: 2008 2007 United States Dollars USD 2,144,568,751 USD 3,035,207,578 Hong Kong Dollars HKD 134,930,700 HKD 518,760,750 Financial assets at fair value through profit or loss denominated in a currency other than the functional currency of the entity to which they relate are as follows: 2008 2007 United States Dollars USD 1,694,880 USD 20,957,112 Sensitivity analysis The following table indicates the approximate change in the Group’s profit after tax and other components of consolidated equity in response to reasonably possible changes in the foreign exchange rates to which the Group has significant exposure at the balance sheet date. The sensitivity analysis includes balances between group companies where the denomination of the balances is in a currency other than the functional currencies of the lender or the borrower. 2008 2007 Increase/(decrease) Effect on profit Effect on other Effect on profit Effect on other Increase / (decrease) in foreign exchange after tax and components of after tax and components of rates retained profits equity retained profits equity United States Dollars 10% (112,192,264) (113,246,603) (144,745,272) (145,871,810) United States Dollars (10%) 112,192,264 113,246,603 144,745,272 145,871,810 Hong Kong Dollars 10% (9,718,976) (220,462,035) (35,522,658) (262,186,940) Hong Kong Dollars (10%) 9,718,976 220,462,035 35,522,658 262,186,940 163 China Vanke Co., Ltd. Year ended 31 December 2008 39 Financial risk management (continued) (d) Foreign exchange risk (continued) Sensitivity analysis (continued) The sensitivity analysis has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet date and had been applied to each of the group entities’ exposure to currency risk for non-derivative financial instruments in existence at that date, and that all other variables, in particular interest rates, remain constant. The Group has entered into certain non-deliverable forwards to hedge its exchange risk and the above analysis has taken into account the effect brought from the non-deliverable forwards. (e) Equity price risk The Group is exposed to equity price changes arising from equity investments classified as available-for-sale equity securities (see note 22). The Group monitors the performance of the available-for-sale equity securities regularly. 40 Non-adjusting post balance sheet events After the balance sheet date the directors proposed a final dividend, further details of which are disclosed in note 15. 41 Accounting estimates and judgments Key sources of estimation uncertainty (i) Impairment provision for properties held for development As explained in note 3(h), the Group makes impairment provision for properties held for development taking into account the Group’s estimates of the recoverable amount from such properties. Given the volatility of the PRC property market, the actual recoverable amount may be higher or lower than that estimated at the balance sheet date. Any increase or decrease in the provision would affect profit or loss in future years. (ii) Impairment provision for completed properties for sale and properties under development As explained in notes 3(j) and 3(k), the Group’s completed properties for sale and properties under development are stated at the lower of cost and net realisable value. Based on the Group’s recent experience and the nature of the subject properties, the Group makes estimates of the selling prices, the costs of completion in case for properties under development, and the costs to be incurred in selling the properties. Given the volatility of the PRC property market and the unique nature of individual properties, the actual outcomes in terms of costs and revenue may be higher or lower than that estimated at the balance sheet date. Any increase or decrease in the provision would affect profit or loss in future years 164 China Vanke Co., Ltd. Year ended 31 December 2008 41 Accounting estimates and judgments (continued) Key sources of estimation uncertainty (continued) (iii) Land appreciation tax As explained in note 13(a), land appreciation tax is levied on properties developed by the Group for sale, at progressive rates ranging from 30% to 60% on the appreciation of land value, which under the applicable regulations is calculated based on the proceeds of sales of properties less deductible expenditures including lease charges of land use rights, borrowing cost and relevant property development expenditures. Given the uncertainties of the calculation basis of land appreciation tax to be interpreted local tax bureau, the actual outcomes may be higher or lower than that estimated at the balance sheet date. Any increase or decrease in estimates would affect profit or loss in future years. 42 Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended 31 December 2008 Up to date of issue of these financial statements, the IASB has issued a number if amendments, new standards and interpretations which are not yet effective for the year ended 31 December 2008 and which have not been adopted in these financial statements. The Group is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to result in a restatement of the Group’s results of operations and financial position. In addition, the following developments are expected to result in amended disclosures in the financial statements, including restatement of comparative amounts in the first period of adoption: Effective for accounting periods beginning on or after IFRS 8, Operating segments 1 January 2009 IAS (revised 2007), Presentation of financial statement 1 January 2009 43 Comparative figures Certain comparative figures have been reclassified to confirm with the current year’s presentation. 165