长安Ｂ(200625)2008年年度报告（英文版）

Chongqing Changan Automobile Company Limited 2008 Annual Report I. Important notes and Catalogue Important Notes The Board of Directors& Supervisors of Chongqing Changan Automobile Co., Ltd. (hereinafter referred to as “the Company”) , the directors, supervisors and senior management guarantee that the information contained in the annual report is free of false records, misguiding statements or significant omissions, and assume individual and joint liabilities for the truthfulness, accuracy and integrity of the annual report. No director、supervisors and senior management have raised any disagreement with regard to the truthfulness, accuracy and completeness of the report. Directors absent from the meeting. Name of the Director Reasons for the absence Name of the consignee Deng Zhiyou On Business Wang Xiaoxiang Liu Wei On Business The auditor of the Company, ERNST&YOUNG Hua Ming issued standard audit report without reserving its opinion. Chairman Mr. Xv Liuping, General Manager Mr. Zhang Baolin, Chief Accountant Mr. Cui Yunjiang, and the Chief of Accountant department, Mr. Ni Erke, herein declare to guarantee: the truthfulness and completeness of the financial statements of this annual report. The report shall be presented in both Chinese and English, and should there be any conflicting understanding of the text, the Chinese version shall prevail. Contents I Important notes and contents 1 II General introduction of the Company 2 III Extracts of Accounting and Operating Data 4 IV Change in shares and information about shareholders 6 Information on directors, supervisors, senior executives V 11 and staffs VI Corporate Governance Structure 21 VII Shareholders’ general meeting 25 VIII Report by Board of Directors 26 IX Report by Board of Supervisors 39 X Important Issues 41 XI Financial Statements 47-165 Appendix 166-167 XII Document for future reference 168 1 II. General Introduction to the Company 1. The Company’s legal Chinese name: 重庆长安汽车股份有限公司 The Company’s legal English name: Chongqing ChanganAutomobile Company Limited 2. Legal representative of the Company: Mr. Xu Liuping 3. Secretaries of the Board: Mr. CuiYunjiang, Ms. Li Jun Address: No. 260, Jian Xin East Road, Jiang Bei District, Chongqing Telephone: (023) 67594009 Fax: (023) 67866055 Email address: cazqc@changan.com.cn 4. Registered address: No. 260, Jian Xin East Road, Jiang Bei District, Chongqing Post code: 400023 OfficeAddress: No. 260, Jian Xin East Road, Jiang Bei District, Chongqing Post code: 400023 Internet Website of the Company: http://www.changan.com.cn EmailAddress of the Company: cazqc@changan.com.cn 5. Publications for information disclosure of the Company: China Securities, Securities Daily and Hong Kong Business Website for information disclosure of the Company: http://www.cninfo.com.cn Annual Report preparation: Office of the Board of Directors 6. Place of listing: Shenzhen Stock Exchange Abbreviated name of the stock: ChanganAutomobile Changan B Stock Code: 000625 200625 7. The Company was first registered on: October 31, 1996 RegisteredAddress: No. 309, Nan Cheng Road, NanAn District, Chongqing Date of change in registration: January 25th, 2008 RegisteredAddress: No. 260, Jian Xin East Road, Jiang Bei District, Chongqing Business license number: Yu Zi 5000001805570 Taxation registration number: StateTaxation Chong Zi 51021120286320X, Di Shui Zi 51021120286320X 2 The name and address of the accounting firm for the reporting year: CPAfirm: ERNST&YOUNG Hua Ming CPA Address: Level 16, Ernst & Young Tower Oriental Plaza 1 East Changan Ave. Dongcheng District Beijing,China 100738 3 III. Extracts ofAccounting and Operating Data 1. The Company’s accounting data for the current year (Expressed in RMB yuan): Sales profit 45,623,951 Total profit 34,027,295 Net profit attributed to listed company shareholders 24,380,962 Net profit attributed to listed company shareholders except unusual loss and profit 32,325,749 Net cash flow for operation 484,837,707 Add or subtract of Cash and cash equivilant 65,963,462 Remarks : except unusual profit and loss project and cash Profit and loss arising from the disposal of non-current assets -32,961,492 Government grants 32,993,404 Profit and loss from fair value changes -9,773,408 Reversal of bad debt provision for receivables that are individually tested for impairment 11,805,718 Other non-business income and expenditures other than the above -8,835,197 Effect of the non-recurring profit and loss -668,825 Net effect on the profit and loss attributable to minority shareholders -504,987 Total -7,944,787 2．Reconciliation of the net profits presented under the PRC accounting standards and International Financial Reporting Standards (“IFRS”) (Expressed in RMB yuan) Net profits Net assets Jan.-Dec., 2008 Jan.-Dec., 2007 Jan., 2008 Dec., 2008 Account report according to the international 34,620,411 601,913,381 7,394,157,227 7,427,852,800 finance report rules Account report according to the enterprise accounting 24,380,962 666,893,972 7,573,068,688 7,596,524,813 rule and system under the PRC Adjustment of according to international accounting rules： 1.Reduce corporation income tax on the basis 10,239,449 -64,980,591 -107,627,396 -97,387,947 of purchasing national equipments（Note 1） 2.Payment to currency shareholders of A -71,284,065 -71,284,065 share cash opposite price（Note 2） 4 Total 10,239,449 -64,980,591 -178,911,461 -168,672,012 Note 1: in accordance with the provisions of the Chinese accounting standards, approved by the Inland Difference between Revenue Department the purchase of domestic equipment may be tax deductible for income tax was a direct Chinese and offset the cost of the provisions of international norms and should be involved in the use of age-related assets international accounting included in deferred revenue standard Note 2: Jiangling Holding company, the Company’s JV, held by Jiangling stake in listed companies the right to paid circulation on the price in cash, according to international norms should be included in the profit and loss. 3. Key accounting data and financial indicators of the recent three years (Expressed in RMB yuan) Year 2008 Year2007 Year 2006 Sale Profit 13,375,458,431 13,722,299,143 12,153,773,038 Total profit 34,027,295 653,939,067 503,800,840 Net profit attributted to listed company shareholder 24,380,962 666,893,972 519,444,805 Net profit attributed to listed company shareholder except unusual loss and profit 32,325,749 667,475,926 515,011,929 Net Cash flow for sales 484,837,707 487,637,714 720,095,715 Net Cash flow for per share 0.21 0.25 0.44 Year 2008 Year 2007 Year 2006 Total assets 15,367,824,845 14,352,917,723 14,458,964,646 Owener’s equity (for shareholder ‘s equity ) 7,596,524,813 7,573,068,688 6,972,513,900 Capital stock 2,334,022,848 1,945,019,040 1,620,849,200 Net per profit per share attributed to listed company shareholders 3.25 3.89 4.30 Note: 2006 data as adjusted according to the new accounting rules 4. According to NO. 9 Open Securities Company Information Disclosure by China Securities Supvisory Commette and Eitting Rule in reporting period 2008 net profit rate of assets and profit per share (Expressed in RMB yuan) Year 2008 Year 2007 Year 2006 Basic profit per share 0.01 0.29 0.22 Diluted profit per share 0.01 0.29 0.22 Basic profit per share except unusual profit and loss 0.01 0.29 0.22 Apportioned return on equity 0.32% 8.81% 7.45% Weighted average return on equity 0.32% 9.20% 7.43% Apportioned return on equity except unusual profit and loss 0.43% 8.81% 7.39% Weighted average return on equity except unusual profit and loss 0.43% 9.21% 7.37% Note: 2006 data as adjusted according to the new accounting rules 5 IV. Changes in Shareholdings and Information about Shareholders 1. Changesinshareholdings (1).Changesinshareholdings (Unit:: share) Balance before current Balance after current Addition and deduction（+，-） during change change change Transferred Additionally Bonus from Quantity Ratio others subtotal Quantity Ratio issued share accumulated fund Ⅰ.Non-circulated -97,250,95 885,920,212 45.55% 157,733,852 60,482,900 946,403,112 40.55% shares 2 1、State-owned shares 2、State-owned legal -97,250,95 885,906,240 45.55% 157,731,058 60,480,106 946,386,346 40.55% person shares 2 3、Other domestic holding shares including: domestic non-state legal person shares domestic natural person shares 4、Foreign-hold shares including: foreign legal person shares foreign natural person shares 5、Senior 13,972 2,794 2,794 16,766 0.00% Management Shares 1,059,098,8 328,520,90 Ⅱ.Circulated shares 54.45% 231,269,956 97,250,952 1,387,619,736 59.45% 28 8 1、Domestic listed 227,720,90 555,098,828 28.54% 130,469,956 97,250,952 782,819,736 33.54% RMB shares 8 2、Domestic listed 100,800,00 504,000,000 25.91% 100,800,000 604,800,000 25.91% foreign shares 0 3、Oversea listed foreign shares 4、Others Ⅲ. Total shares 1,945,019,0 100.00% 389,003,808 389,003,80 2,334,022,848 100.00 6 40 8 % (2) .Listing schedule of non-circulated shares: Released Non-circulated Additional Non-circulated Shareholder ‘s non-circulated Reason of non shares in early this non-circulated shares at the Date of release name shares this circulation year shares this year end of year year CHINA SOUTH INDUSTRY AUTOMOBILE 885,906,240 97,250,952 157,731,057 946,386,345 Acceptance 11 May, 2010 COMPANY LIMITED Total 885,906,240 97,250,952 157,731,057 946,386,345 － － 2. I ssueing and Listing of Shares (1) There is no Share issued in the three years up to the year of the report: (2)The inforamtion about the Company’s total share and the change during reporting period In the reporting period, the Company carried out scheme of 2007 annual capital accumulation fund with shares given. The basis of total shares 1,945,019,040 on 31st Dec. 2007, and 2 shares were given to all shareholders every 10 shares. All the shareholders approved the proposal through 2007 annual shareholds’ general meeting on 15th April 2008. The share right registratation date of A share with share given is 30 May, 2008. Ex Right and ex dividend date is 2nd Jun, 2008. B share final dealing date is 30 May, 2008, ex dividend date is 2nd Jun, 2008, and registration date is 4th Jun., 2008. The total shares increased up to 2,334,022,848 after the carrying out of this scheme. 3. Information about the shareholders (1) The ten largest shareholders information Unit： Share Totaled 234,597, of which 197,209 were A share shareholders and Total number of shareholders 37,888 were B share shareholders. The ten largest shareholders Percenta Non-circulat Pledged/ Nature of ge of Shares held at ed shares Name of shareholders Frozen Shareholders total the year-end held at the shares shares year-end CHINA SOUTH INDUSTRY State-owned legal 946,386,34 45.55% 1,063,087,489 0 AUTOMOBILE COMPANY LIMITED person shares 6 CMBLSA RE FTIF TEMPLETON foreign legal 1.93% 45,135,073 Unknown 7 ASIAN GRW FD GTI 5496 person shares GUOTAI JUNAN foreign legal 0.46% 10,799,505 Unknown SECURITIES(HONGKONG) LIMITED person shares foreign legal GAO-LING FUND,L.P. 0.39% 9,112,071 Unknown person shares foreign legal DRAGON BILLION CHINA FUND 0.32% 7,410,600 Unknown person shares XINGYE BANK COMPANY LIMITED domestic –XINGYE TREND INVESTMENT MIX non-state legal 0.31% 7,297,339 Unknown TYPE SECURITIES INVESTMENT person shares FUND CORE PACIFIC-YAMAICHI foreign legal 0.30% 6,981,792 Unknown INTERNATIONAL (H.K.) LIMITED person shares CITIGROUP GLOBAL MARKETS foreign legal 0.28% 6,597,792 Unknown LIMITED person shares INDUSTRIAL AND COMMERCIAL domestic BANK OF CHINA –RONGTONG non-state legal 0.28% 6,534,992 Unknown SHENZHENG YIBAI ZHISHU person shares SECURITIES INVESTMENT FUND DREYFUS PIFI-DREYFUS PREMIER foreign legal 0.24% 5,711,537 Unknown GREATER CHINA person shares The ten largest circulated shareholders Name of shareholders Shares at the year end Type of shares CHINA SOUTH INDUSTRY AUTOMOBILE COMPANY 116,701,143 RMB Ordinary share LIMITED Domestic listed foreign CMBLSA RE FTIF TEMPLETON ASIAN GRW FD GTI 5496 45,135,073 shares Domestic listed foreign GUOTAI JUNAN SECURITIES(HONGKONG) LIMITED 10,799,505 shares Domestic listed foreign GAO-LING FUND,L.P. 9,112,071 shares Domestic listed foreign DRAGON BILLION CHINA FUND 7,410,600 shares XINGYE BANK COMPANY LIMITED –XINGYE TREND INVESTMENT MIX TYPE SECURITIES INVESTMENT 7,297,339 RMB Ordinary share FUND CORE PACIFIC-YAMAICHI INTERNATIONAL (H.K.) Domestic listed foreign 6,981,792 LIMITED shares Domestic listed foreign CITIGROUP GLOBAL MARKETS LIMITED 6,597,792 shares INDUSTRIAL AND COMMERCIAL BANK OF CHINA 6,534,992 RMB Ordinary share 8 –RONGTONG SHENZHENG YIBAI ZHISHU SECURITIES INVESTMENT FUND Domestic listed foreign DREYFUS PIFI-DREYFUS PREMIER GREATER CHINA 5,711,537 shares Explanation on the relationship and the action alike of above Among the largest ten share holders, the state-owned legal shareholders person shareholder China South Industry Automobile Co., Ltd. had no relationship with other share holders, and nor was the party who agreed to act alike as stipulated in Administrative Measures on Information Disclosure Concerning Changes in Shareholdings of Listed Companies. The company did not know whether there was relationship among the large ten circulated shareholders , and nor knew whether they were the parties who agreed to act alike as stipulated in Administrative Measures on Information Disclosure Concerning Changes in Shareholdings of Listed Companies. （2）The controlling shareholder Controlling shareholder: China South Industry Automobile Co., Ltd. Legal representative: Xu Bin Date of establishment: Dec 26th, 2005 Registered capital: RMB 4,582,373,700 yuan Business scope and major products:design, development, manufacture and sales of automobile &motorcycle, automobile &motorcycle engine, automotive and motor cycle components& parts; sales of Optical products, electronic and photoelectron products, night-time vision device, information and communication equipment; technical development, technical transfer, technical consultation, technical training, and other technical service relative with the operation mentioned above; imports and exports; merge and acquisition and consultation of assets restructuring. （3）The ultimate parent of the Company: China South Industries Group Corp. The ultimate parent of the Company: China South Industries Group Corp. Legal representative: Xu Bin Date of establishment: June 29, 1999 Registered capital: RMB 12,645,210,000 yuan Business scope and major products: investment and management of state-owned assets; manufacturing of guns and firearms; engineering prospecting, designing, construction, contracting, construction supervision; equipment installation, etc. 9 （4） Relationship among the Company and its controlling shareholders: State-owned Assets Supervision and Administration Commission of the State C 100% China South Industries Group Corp 100% China South Industry Automobile Co.Ltd 45.55% Chongqing Changan Automobile Co., Ltd. 10 V. Information about Directors, Supervisors, Senior Management and Employees 1. Informationabout directors,supervisorsandseniormanagement Shares held at Shares held at Reasons for Name Position Gender Age Term of office year-beginning year-end change Xu Liuping Chairman M. 44 2006.05-2009.05 0 0 Deng Zhiyou Director M. 45 2006.05-2009.05 0 0 Zhao Luchuan Director M. 55 2008.09-2009.05 0 0 Wang Xiaoxiang Director M. 35 2008.09-2009.05 0 0 Director, General Zhang Baolin manager M. 46 2006.05-2009.05 0 0 Director, Deputy Cui Yunjiang General Manager, M. 45 2006.05-2009.05 0 0 Board Secretary Transferred Wang Director, Deputy from M. 50 2006.05-2009.05 7,984 9,581 Chongsheng General Manager accumulated fund Director, Deputy Ma Jun M. 49 2006.05-2009.05 0 0 General Manager Director, Deputy General Manager, Executive Vice Zou Wenchao President of M. 45 2006.05-2009.05 0 0 Changan Ford Mazda Automobile Co. Director, Deputy Zhu Huarong M. 43 2006.05-2009.05 0 0 General Manager Ouyang Independent Minggao Director M. 50 2008.09-2009.05 0 0 Independent Chen Zhong Director M. 52 2008.09-2009.05 0 0 Independent Wang Zhixiong Director M. 50 2008.09-2009.05 0 0 Peng Independent Shaobing Director M. 44 2008.09-2009.05 0 0 Independent Liu Wei Director M. 44 2006.05-2009.05 0 0 Shi Yubao Organizer of the M. 55 2006.05-2009.05 0 0 11 Board of Supervisors Cui Xiaomei Supervisor F. 53 2006.05-2009.05 0 0 Cao Dongping Supervisor F. 55 2006.05-2009.05 0 0 Xiong Huilin Supervisor F. 49 2006.05-2009.05 0 0 Zhu Zhiping Supervisor M 46 2006.05-2009.05 0 0 Hua zhanbiao Supervisor M. 41 2006.05-2009.05 0 0 Fu Xiangyu Supervisor F. 53 2006.05-2009.05 0 0 Ying Deputy General Zhanwang Manager M. 49 2006.05-2009.05 0 0 Huang Deputy General Zhongqiang Manager M. 40 2006.05-2009.05 0 0 Transferred Deputy General from Ren Qiang M. 48 2006.05-2009.05 2,662 3,194 Manager accumulated fund Deputy General Song Jia Manager M. 43 2006.05-2009.05 0 0 Deputy General Luo Minggang Manager M. 45 2006.05-2009.05 0 0 Deputy General Wu Xuesong Manager M. 40 2009.01-2009.05 0 0 Li Jun Board Secretary F. 39 2006.05-2009.05 0 0 Positions of the Directors and Supervisors in the shareholder companies are as below: Name Shareholder Company Position Term of office Executive Director, Senior Vice Xu Liuping China South Industry Automobile Co., Ltd 2005.12-2010.1 President Executive Director, Vice Deng Zhiyou China South Industry Automobile Co., Ltd 2005.12-2010.1 President Director, Vice President, Zhao Luchuan China South Industry Automobile Co., Ltd Manager of Operation 2006.4-2010.1 Management Division Director, Vice President, Wang Xiaoxiang China South Industry Automobile Co., Ltd 2005.12-2010.1 Manager of Financial Division Zhang Baolin China South Industry Automobile Co., Ltd Executive Director 2007.1-2010.1 2. Major work experiences and positions of the Directors, Supervisors and the senior management: in entities other than the shareholder company (1) Directors Mr. Xu Liuping, Board Chairman, CPC secretary, was born in 1964. With a doctor’s degree, he is a senior researcher-level 12 engineer. He used to Vice Director of Planning department, Director of Automobile department and Assistant of General manager in China South Industries Group Corp, and was President and Secretary of the Party Committee of CAC He currently holds the positions of Deputy General Manager, Member of the Party Committee of China South Industries Group Corp, and Executive Director, Senior Vice President of China South Industry Automobile Co, Ltd,. Mr. Deng Zhiyou, Director, was born in 1963. He has a Master’s Degree in Engineering, EMBA certificate, is a senior engineer. He used to serve as Workshop Director, Assistant to Plant director, Chief Finance Officer, Vice Director of Plant, Deputy General Manager, and General Manager of Chongqing Qsingshan Industries Co., Ltd., Vice Director and Director of Business Operation Department, Director of South-west Department, Director of Automobile Department of China South Industries Group Corp. He currently serves as Executive Director, Vice President and manager of Management Department of China South Industries Automobile Co., Ltd., Director, Board Chairman, Secretary of Party Committee and General Manager of Taiyuan South Heavy Vehicle Ltd. Co. Mr. Zhao Luchuan, Director, born in1953, he has a Master’s Degree in Engineering, is a senior research-level engineer. He used to work as the vice secretary of Party Committee, the vice factory director of Jiangling Machinery Factory; the director and Executive vice president of CAC; the vice president and general manager of the company; the deputy director general of South-west Industries Bureau. He is now the director, vice president and manager of the operation management department of China South Industries Automobile Co., Ltd., Mr. Wang Xiaoxiang, Director, born in 1973, he has obtained a master degree of the international accounting. He used to work as vice director of the financial accounting management section, the director of the general accounting section, and the director of the budget section of the financial audit department of China South Industries Group Co. the assistant to the president of CAC, the vice director of financial affairs department of China South Industries Group Co.. He is now the director, vice president and manager of the financial accounting department of China South Industries Automobile Co., Ltd., Mr. Zhang Baolin, Director and General Manager, was born in 1962, he has obtained a postgraduate degree, a senior economist. and senior political &ideological worker. He used to work as Vice Secretary and Secretary of the League Committee of the South-west Industries Bureau in China Industries Company, Secretary of the Party Committee of Chongqing Changfeng Machinery Factory, Senior Deputy General Manager and General Manager of Chengdu Wanyou Company, Director and Vice President of CAC, Deputy Executive General Manager of the Company. Mr. Cui Yunjiang, Director, Deputy General Manager, Board Secretary and Chief of Finance Department, was born in 1963. He has obtained master’s degree and is a senior accountant. He used to be Vice Director of the Finance Department of Changan 13 Machinery Factory, Director of the Finance Department of Changan Suzuki Automobile Company, Director of the Securities Department, and Director of Finance Department of the company. Mr. Wang Chongsheng, Director, Deputy General Manager, was born in 1958. He is a senior economist with post-graduate qualifications. He used to be Secretary of the League Committee of Changan Machinery Factory, Vice Secretary of the Party Committee and Secretary of the Discipline Committee of 5023 Factory, Head of Marketing Department of the Automobile Bureau in China Industries Company, Director of the General Manager’s Office, Vice president and Vice CPC secretary of CAC. Mr. Zou Wenchao, Director, Deputy general manager and Executive Vice President of Changan Ford Mazda Automobile Co. He has a Master’s Degree in Engineering, is a senior engineer. Born in 1963, he used to serve as Vice Director of Workshop No.22 and Vice Director of Vehicle Development Institute in Jiangling Machinery Factory, Vice Director of Planning Department of Automobile Bureau in China Industries Company, Section Chief and Vice Director of Planning Department, Assistant to General Manager, Vice President of CAC and Secretary of Party Branch Committee. Mr. Ma Jun, Director and Deputy General Manager, was born in 1959. He has obtained master’s degree in engineering and is a senior engineer. He used to be Vice Head of the Technical Department of Changan Machinery Factory, Head of the Technical Department Two, Head of the Standardized Information Department, Vice Director of the General Administration Office, Assistant to President, Director of the General Administration Office, Deputy Director and Director of the Information Center of CAC, Director of the Information Center and the vice president of CAC. Mr. Zhu Huarong, Director, Deputy General Manager and the director of the Changan Automobile Engineering Institute, was born in 1965. He has master’s degree in engineering and is a senior research-level engineer. He used to be Vice Director of the Engine Research Institute of Jiangling Machinery Factory, Vice Director of Technical Department of CAC, Chief Engineer of the Automobile Manufacturing Factory of the Company, Assistant to president, Director of Technical Center, Director of Technology Committee, Director of the Board and Vice President of CAC. Mr. Ouyang Minggao, independent director, Born in 1958, he is the special employed professor of the Ministry of Education, the dean, professor and the Doctoral tutor of the Automobile Engineering department of the Tsinghua University, the Director of Automotive Safety and Energy Conservation National key Laboratory, the director of Beijing Tsinghua energy-saving and new energy Automotive Engineering Center, The Standing Committee of the Chinese Political Consultative Conference, the overall team leader of the major projects of the National "863" Project on Energy-saving and new energy automobiles, the expert of the overall group of the National "Tenth Five-Year" 863 major special project, the overall Team Leader and Project Leader of the “Fuel cell city bus" project. 14 Mr. Chen Zhong, independent director, Born in 1956, he is a financial doctor and researcher. He was once the deputy director and director of the research department of the original Chinese Enterprise Management Association, the Secretary-Genera (legal representative) of the Chinese enterprise management Science Foundation, executive vice president, deputy party secretary, executive director of the China Enterprise Confederation, the Deputy Secretary-General and the party member (to assist in charge of finance, project work plans and prior project) of Chongqing Municipal Government. He is now the Chairman of New Century Fund Management Co., Ltd. His Main part-time positions are as follows: the member of the Management Department’s Accreditation Board of National Natural Science Foundation, the Vice-President of Chinese Young Entrepreneurs Association, the part-time professor of Jilin University and Beijing Technology and Business University. Mr. Wang Zhixiong, independent director. Born in 1958, he is a graduate of the law major. It has been 25 years since he began to work as a full-time lawer. He had being worked in citic law firm from October, 1985 to March, 1996, mainly engaged in the law practice related to the foreign-related economic, investment, securities and financial affairs. He joined the Beijing Tongshang law firm as the partner in April, 1996 and worked as the partner of Beijing Junhe law firm in March, 2002. Mr. Wang Zhixiong is mainly engaged in the law affairs related to finance, securities, company law, foreign investment, corporate mergers and acquisitions. He got the eligible qualification of securities law service in 1993, participated in the law practice of dozens of enterprises, joint-stock transformation, stock issuance and listing. He had once served as the independent director of the Henan Yuneng Co., ltd and Henan Ping An Securities ltd. Mr. Peng Shaobing, independent director. Born in 1964, he has obtained the doctor’s degree in economics and is a professor and a doctoral guide. He is now the director of the accounting institute of the South Western University of Finance and Economics, the member of the Chinese Accounting Association, the standing member of the education branch of the Chinese Accounting Association, a committee member of the education and training committee of Chinese Institute of Certified Public Accountants Association, the consultative expert of the enterprise internal control standards committee of the Ministry of Finance. Mr. Peng Shaobing has being engaged in the scientific research and teaching work related to the financial accounting and financial management for a long time, his main research areas are as follows: accounting standards and systems, financial reporting and analysis, capital markets and corporate governance, corporate finance and fund management, state-owned capital operation and management, financial risk control and management. Mr. Liu Wei, Independent Director, was born in 1964. He has a doctor’s degree and used to work as tutor, Department Head Assistant, Vice Dean and professor at Chongqing University. He is currently professor and tutor of doctor at Chongqing University involved in strategy management, technical innovations and management studies. He is the Independent Director of Chongqing 15 Jianfeng Chemical Joint- stock Company. (2) Supervisors Mr. Shi Yubao, Organizer of the Board of Supervisors, was born in 1953. He has obtained master’s degree, is a senior economist and a senior political&ideological worker. He used to be Vice Director of the Party Council Office of CAC, and Secretary of the Party Committee, Deputy Manager and Manager of Automobile Manufacturing Factory. He is currently Director, Vice Secretary of the Party Committee and general manager of CAC. Ms. Cui Xiaomei, Supervisor, was born in 1955. She has obtained two Bachelor’s Degrees, is a senior economist. She used to serve as Vice Director of Final Assembly Workshop in Jiangling Machinery Plant, Plant Vice Director, Vice Director of Planning Department, and Vice Director of Foreign Trade in Sub-Plant One, Party Secretary of Precision Mechinery Plant in CAC, Deputy General Manager and Party Secretary of Changan Automobile Sale Company, Assistant to President of CAC, Deputy General Manager of Changan Suzuki Automobile Company, Deputy General Manager of the Company. She currently serves as deputy general manager, Deputy Secretary of the Party Committee and Secretary of the Discipline Committee of CAC. Ms. Cao Dongping, Supervisor, was born in 1953. She graduated from a junior college and obtained the title of senior accountant. She used to be Head of the Finance Department of Jiangling Engine Company, Vice Director and Director of the Finance Department of CAC. Ms. Xiong Huilin, Supervisor, was born in 1959. She is a postgraduate, senior economist, senior political&ideological worker and senior enterprise administrator and used to be Director of Administrative Office of Automobile Manufacturing Factory of CAC, Chairman of the Labors’ Union of education’s department of Changan Machinery Manufacturing Factory, Vice Chairman of the Labors’ Union of CAC. At present, she serves as Chairman of the Labors’ Union and the Vice Secretary of Party Committee of Changan Suzuki Automobile Company. Mr. Zhu Zhiping, Supervisor, was born in 1962. He has obtained master’s degree and is a senior economist. He used to be Head of the Human Resource Department of Automobile Manufacturing Factory, Director of the Salary Management and the Vice –Head and the Head of the Human Resource Department of the Company. He currently serves as Deputy General Manager of Changan Suzuki Automobile Company Mr. Hua Dubiao, Supervisor, was born in 1967. He is a graduate, and obtained the title of Accountant. He used to be Vice Head and Head of the Audit Department of the Company, and Vice Head of Audit and Supervision Department of the Company. He is currently Deputy Secretary of the Discipline Committee, and the Head of Audit Department and Director of Audit and Supervision Department of the Company. 16 Ms. Fu Xiangyu, Supervisor, was born in 1955. She graduated from a junior college and has obtained the title of Accountant. She used to be Vice Head and Head of the Finance Department at the Automobile Manufacturing Factory, and Head of the Cost and Price Department of the Company. (3) Senior Management other than Directors and Supervisors: Mr.Ying Zhanwang, Deputy General Manager, Vice President of Changan Ford Mazda Automobile Company, and General Manager of Plant Two of Changan Ford Mazda Automobile Company. Born in 1959, he has a Master’s Degree in Engineering, a senior researcher-level engineer. He used to serve as an engineer of the Engine Plant in Nanjing Automobile Manufacturing Plant, Chief of Technology Office of Technology Institute in Changan Machinery Plant, Vice Director of Technology Institute Two, Vice Director of Technical Department, Director of Planning Department, Assistant to President, Vice President of CAC. Mr. HuangZhongqiang, Deputy General Manager of the Company and Deputy General Manager of Changan Suzuki Automobile Company, was born in 1968 and has a master’s degree in engineering. He is a senior engineer and used to be Vice Director and Director of the General Manager’s Office of CAC, Director of the Quality Control Department, Assistant to President, and Vice President of CAC. Mr. Ren Qiang, Deputy General Manager, and Executive Vice President of Jiangling Holding Co., was born in 1960. He has a Master’s Degree in Engineering, is a senior research-level engineer. He used to serve as Vice Secretary of the Youth League Committee of the No.2 Textile Machinery Plant at Shaoyang City, Hunan Province, Vice Chief of Non-standard Product Design Office and Vice Director of General Design Institute of Changan Machinery Plant, Vice Director of Construction Institute, Vice Director and Director of Development Planning Department of CAC, and Assistant to President of CAC, General Manager of Changan Jinling Parts Company, and Vice President of CAC. Mr. Song Jia, senior Deputy General Manager, and General Manager of Changan Automobile Sales Company, was born in 1965. He has a Master’s Degree in Engineering, is a senior researcher-level engineer. He used to serve as Vice Director of Civil Products Institute, Vice Chief Engineer, Director of Automobile Institute, and Deputy Manager of Changjiang Electronics Plant, Deputy General Manager of Changan Automobile Sales Company, General Manager of Hebei Changan Company, Assistant to President, and Vice President of CAC. Mr. Luo Minggang, Deputy General Manager, was born in 1963. He has a Master’s Degree in Engineering, is a enior researcher-level engineer. He used to serve as Vice Director of Workshop No.26, and Director of Technology Department of Jiangling Machinery Plant, Director of No.1 Technology Institute of CAC, Director of Engine Technology Department and Vice Chief Engineer of Automobile Manufacturing Factory, Vice Director of Technical Center, Deputy Manager of Engine Manufacturing 17 Factory, Deputy Manager and Chief Engineer of Automobile Manufacturing Factory, Vice Director of Changan Automotive Engineering Institute, Assistant to President of CAC. Mr. Wu Xuesong, senior general manager, was born in 1967. He has obtained master’s degree and is an engineer. He used to serve as Vice Director of the planning department in Changan automotive precision machinery manufacturing factory, inspector general, vice inspector general of the sales department, vice director of the planning and dispatch department of Changan Automobile sales company, the general manager and vice secretary of the party committee of the Hebei Changan Automobile Company and the vice president of CAC. Ms. Li Jun, Secretary of the Board and Head of the Capital Operations Department of the Company, was born in 1969. She is a graduate, and obtained MBA degree and the title of Senior Accountant. She used to be Vice Head of the Securities Investment Division of the Company’s Finance Department. 3. Annual Remuneration In 2008, the annual remuneration for the directors, supervisors and senior management had been duly paid by month according to the relevant policy on management salary and by ranks and grades set by China South Industries Group. 2008 Annual Remuneration(Expressed in Name Position RMB 10 thousand yuan) Zhang Baolin Director, General Manager 52.09 Director, Deputy general manager, Executive Vice Zou Wenchao President of Changan Ford Mazda 47.77 Director, Deputy General Manager, and Board Cui Yunjiang 44.02 Secretary Zhu Huarong Director, Deputy General Manager 42.01 Guo Konghui Independent director 5 Xia Donglin Independent director 5 18 Gao Zhikai Independent director 5 Wen Zongyu Independent director 5 Liu Wei Independent director 5 Xiong Huilin Supervisor 13.23 Supervisor Zhu Zhiping 14.22 Hua Dubiao Supervisor 14.38 Fu Xiangyu Supervisor 9.04 Ying Zhanwang Deputy General Manager 42.12 Huang Deputy General Manager 44.16 Zhongqiang Ren Qiang Deputy General Manager 36.14 Song Jia Deputy General Manager 37.25 Luo Minggang Deputy General Manager 30.95 Total 452.38 Remuneration for independent directors was RMB 50,000 yuan (tax included) per person per year. Expenses incurred because of executing responsibilities in connection with the Company’s Article of Association and in attending board of directors meetings and shareholders’ general meetings and were reimbursed by the Company. Chairman Xu Luping, Director Deng zhiyou, Zhao Luchuan, Wang Xiaoxiang, Wang Chongsheng and Ma Jun; Organizer of the Board of Supervisors Shi Yubao, Supervisor Cui Xiaomei get remuneration from shareholders’ company and related company during the reporting period. The independent directors whose six-year term expired in 2008 were no longer the independent directors from August, 29, 2008 as follows: Mr. Guo Konghui, Mr. Wen Zouyu, Mr. Gao Zhikai and Mr. Xia Donglin. In the reporting period, the new appointed independent directors have not got remuneration from the company as follows: Mr. Ouyang Minggao, 19 Mr. Chen Zhong, Mr. Wang Zhixiong and Mr. Peng Shaobing. 4. During the reporting period, informationon on the change of directors, supervisors, and senior managers After taking a vote and passing through the fourteenth session of the Board of Director’s fourth meeting on January 25, 2008, Mr. Jia Tingyue was no longer Deputy General Manager of the Company due to employment change, Mr. Ren Qiang, Mr. SongJia, Mr. Luo Minggang were appointed to the position of Deputy General Manager of the Company. Mr. Zhang Zhao was appointed Deputy General Manager of the Company. After taking a vote and passing through the nineteenth session of the Board of Director’s fourth meeting on August, 29, 2008, according to the regulations of China's Securities Regulatory Commission, the following persons were no longer the independent directors because of the expiration of their 6-year term, they are: Mr. Guo Konghui, Mr. Wen Zongyu, Mr. Gao Zhikai and Mr. Xia Donglin.The company's board of directors nominated the following persons as the candidates of independent director, they are: Mr. OuYang Minggao, Mr. Chenzhong, Mr. Wang Zhixiong and Mr. Peng Shaobing. The director Mr. Deng Tengjiang and Mr. Wang Tingwei intended to resign from directorship. According to the nomination of the China South Industries Automobile Company, Ltd. Mr. Zhao Luchuan and Mr. Wang Xiaoxiang were recommended as the candidates of board of the directors of the company. After taking a vote and passing through 2008 first temporary shareholders’ general meeting held on September, 19, 2008, the candidates above mentioned were formally appointed to the company’s directors and independent directors. The matters after the reporting period: After taking a vote and passing through the twenty-third session of the Board of Director’s fourth meeting on January, 06, 2009, Mr. Yin Jiaxu was no longer the director and board chairman of the company due to employment change. In accordance with the company’s big shareholders’ recommendation, Mr. Zhu Huarong was appointed director of the Company while Mr. Xu Liuping was elected by board of directors as chairman. Mr. Wang Chongsheng, Mr. Zou Wenchao, Mr. Ma Jun and Mr. Wu Xuesong were appointed Deputy General Manager of the Company .Mr. Zhang Zhao was no longer the company’s deputy general manager. After 2009 first temporary shareholders’ general meeting held on January 22, 2009, Mr. Zhu Huarong was elected as director of the board. 5. The Employees of the Company By the end of this year, total headcount of the Company was 8,691, including 3,814 production workers, 774 salesmen, 2,448 engineers, 155 finance staff, and 1,426 administrative staff, and 74 others. Among the total, there were 23 with doctorate degree, 253 with master degree, 3,582 with bachelor degree, and 1,591 with college education. The Company also shall bear the expenditure for 2,075 retired employees. 20 VI Corporate Governance 1. Corporate Governance The Company has been strictly complying with the relevant laws and regulations, including the Company Law, the Securities Law, the Regulations for the Governance of Listed Companies, the Guidelines for the establishment of Independent Directors system in Listed Companies, Regulations on Strengthening the Protection of Social and Public Shareholders’ Interests and continuously improving the corporate governance structure of the Company. The Company drew up and executed a series of disciplines, including Articles of Association, Regulations on Shareholders’ general meeting, Regulations on Board of Directors, Regulations on Board of Supervisors, Management Regulations on Connected Transaction, and Management Regulations on Information Disclosure. The company is continuously adopting modern best practices and standardizing the management and operations of the Company. In the reporting period, the Company strictly abides by the notice regarding of the prevention of major shareholders of the listed companies occupying the company’s funds which was released by China Securities Regulatory Commission. In addition, according to Self-Examination and Self-Correction Notice Regarding Preventing Impropriating Funds, issued by the Shenzhen Stock Exchange and Chongqing Securities Regulatory Bureau, the company actively carried out the self-examination and self-correction.There’s no major shareholder who impropriated the funds (non-operation funds) with violation of regualtions. In the reporting period, the company modified the Articles of Association with addition of some restraint provisions for the company’s controlling shareholder, the actual controller and the senior management who have the opportunity to impropriate the company’s assets or to do harm to the profits of the company and the public investors. The modified article clearly clarified the responsibility of the related parties who impropriate the funds and the countermeasures the company should take. It also regulated the capital movement relationship between the company and its controlling shareholder, between the actual controller and the senior management. In addition, the responsibility tracking mechanism of “Instant freezing as funds impropriated” was established. Through the special governance activities, the company has strengthened its internal management system, enhanced the awareness of standardized operation of the company's directors, supervisors and senior management, and promoted the company's normal operation level. The actual state of corporate governance is in line with the documentation requirements of China Securities Regulatory Commission and Shenzhen Stock Exchange.The Company will strictly carry out the Company’s Rules and the Interior Control System in accordance with the requirements of the Notice on Strengthening the Related Work of the Special Corporate Governance of Listed Companies and Regulations for the Corporate Governance of Listed Companies ,and continuously improve the system of the Corporate Governance for the rapid and healthy development of the Company. 21 2. The Independent Directors There are 5 Independent Directors of Board in the Company, which is in accordance with relevant regulations by the China Securities Regulatory Commission. Since their appointment the independent directors of the Board have been honest, diligent and industrious in actively comprehending operation of the Company, fulfilling their duties and expressed independent opinions on investment, related party transactions, renumeration incentives and other significant decision-making in accordance with Guidance Instruction for Regulation on Independent Directors, thus contributing to the improvement in the corporate governance of the Company, the decision-making mechanism of the Company and the safeguard of the Company’s interest, especially of the minority shareholders’ interests. The independent directors also made contributions to management level in Company. (1) Independent Directors’ Attendance of the Board Meetings during reporting period: Name of Independent Times of Attendance Times of Attendance Times of Entrusted Times of Absence Remarks director Required in Person Attendance Mr.Guo konghui 7 7 Mr.Xia Donglin 7 5 2 Being abroad Mr. Wen Zongyu 7 7 Mr.Gao Zhikai 7 5 2 Mr.Liu Wei 10 7 Mr.Ouyang minggao 3 2 1 Mr.Chen Zhong 3 3 Mr.Wang Zhixiong 3 3 Mr. Peng Shaobing 3 3 (2)Negative opinions regarding the Company’s issues raised by the Independent Directors In the reporting period, no negative opinion regarding the Company’s issues is raised by the Independent Directors. 3. The 5 Independent Departments of the Company from its Shareholders The Company is totoally independent from the shareholders in operation, assets, staffs, organization and finance.Regarding business the main business scope of the Company includes the development, manufacture and sale of automobiles, engines and of the related automotive parts.The main business has been approved by government authorities and the Company does not rely on any other entity. The Company has the technology system, production system and sales system suited to its business scope, and can undertake the operations independently. Regarding asssets, the Company has necessary fixed assets, current assets, intangible assets and the related functional departments to meet its operation needs, and has constituted a complete system. Regarding the staff, the Company signed employment contracts with the employees registered on the list.It takes charge of the employees’ performance and personnel management, and the Company grants salary, pension, housing accumulation fund and other welfare for the employees independently. Regarding organization, each division and department of the Company are 22 independent from the controlling shareholders and exercise their rights in accordance with the relevant regulations and laws. Regarding finance, the Company has its own independent financial department, establishes independent accounting system and financial management system. 4.Self-assessment for internal control of the Comopany (1)Reporton self-assessment for internal control Changan Automobile Self-Assessment for Internal Control Reports was approved on the company twenty-fourth meeting of the Board of Directors. The Board of Directors view: based on the actual situation and management needs, the Company set up a complete sound and reasonable internal control system that ran through the company to operate at all levels of activity and the aspect and was effectively implemented. Under the Basic Norms of Companys’Internal Control, internal control guidelines for listed companies issued by the Shenzhen Stock Exchange, the Company in December 31, 2008 maintained an effective internal control related to the financial statements in all important respects. (2)The Supervisory Board’s opinion on the company's self-assessment for internal control In accordance with "Guidelines on Internal Control of Listed Companies" and "Notice on 2008 Annual Report of Listed Company" by Shenzhen Stock Exchange the supervisory board of the company express their views on self-assessment of internal controls as follows： A.Under the relevant provisions of the China Securities Regulatory Commission and the Shenzhen Stock Exchange, following the basic principles of internal control, in accordance with the actual situation of its own, the Company establishes and strenthens the internal control system covering the company's every aspect to ensure that the company's normal business activities, and to protect the assets security and integrity of the Company. B.The integral internal control organizations and the internal audit department with all ready staffs on designated position ensure the important activities implementation and effective supervision of the Company's internal control. C.In 2008 the Company did not violate"Internal Control Guidelines for Listed Companies" by the Shenzhen Stock Exchange and the internal control system. To sum up, the board of supervisors thinks: the company’s self-assessment for internal control is comprehensive, true, and accurate, reflecting the company's internal control of the actual situation. (3) Independent directors’opinion on the Company's self-assessment for internal control During the reporting period, the Company regards "Internal Control System" as the core to develop and perfect a series of internal management system. The company has a more robust and perfect internal control system, its business control system, accounting control system, information control systems, information transmission control systems, internal audit control system 23 more complete and rigorous. The strict, full and effective internal control for the subsidiary, related party transactions, external warrenty, funds raising utilization, major investment and the information disclosure ensures the company's operation and management normal, reasonable, integral and effective. The internal control system refinement and perfection for every aspect is in line with Chnia’s relevant laws, regulations and regulatory requirements; self-assessment of internal control in line with the actual internal control of the Company. 5.Establishing and Implementing Performance Evaluation System, Incentive System and Related Rewarding System for the Senior Management (1) Performance evaluation system According to the performance evaluation management system of the Company, the Board is responsible for reviewing the performance of the General Manager and other senior management. The performance review combines periodic and regular reviews, as well as quantitive and qualitative reviews. (2)Incentive system The income of senior management comprises basic salary and performance-related pay. Performance-related pay links up with performance reviews. (3)Regulating system The Company has signed Employment Contracts with the senior management, and regulates the power exercise, the power limitations, duties & responsibilities of the senior management. (4)The establishment and implementation of the incentive system The plan of incentive fund appropriation was discussed and passed in 2004 Annual General Shareholders’Meeting of the Company: taking the audited net profit return of the prior year reaching 10% as starting point and the prior year’s audited consolidated net profit as appropriated base. The board will appropriate incentive fund according to the ratio of defined prior-year consolidated net profit when prior-year net profit return r on Shareholders’ Equity each over 10%. No such fund is appropriated when the net profit Return on Shareholders’ Equity is below 10%. In 2008, the Company did not appropriate incentive fund due to the ratio of incentive fund appropriation was not yet achieved. Up to now, the remaining amount is RMB 18.4857million yuan. 24 VII. Shareholders’ general meeting 1. The Board of Directors announced 2007 Shareholders’ general meeting through China Securities, Securities Daily and Hong Kong Business on March 24, 2008. The meeting was held on April 25, 2008 at multimedia meeting room in science and technology building， Changan headquarters. The meeting resolutions were announced on China Securities, Securities Daily and Hong Kong Business on April 26, 2008. 2. The Board of Directors announced the 2008 First Session of Temporary General shareholders’meeting on August 30, 2008 through China Securities, Securities Daily and Hong Kong Business. The meeting was held on September 19, 2008 at multimedia meeting room in science and technology building，Changan headquarters. The meeting resolutions were announced on China Securities, Securities Daily and Hong Kong Business on September 20, 2008. 25 VIII. Report of the Board of Directors 1. Discussion and analysis of the business （1）The operation of the Company during the reporting period The Company is mainly engaged in the development, manufacturing and sales of passenger cars and commercial cars. The current products of the Company, its subsidaries and its joint venture mainly include: mini-vehicle such as Changan Star mini-commercial vehicle, Changan Brand mini-truck, Changan sedan such as Benni, Jiexun and Zhixiang; Changan Suzuki’s Gazalle, Swift and SX4; Changan Ford Mazda’s new Mondeo“Zhisheng”, Focus, New Fiesta, Mazda 3, Mazda 2, S-MAX, Volvo S40 sedan and Volvo S80 sedan; Jiangling Holding’s Landwind MPV, and sedan such as Landwind Fenghua and Fengshang. Moreover, the Company manufactures and selles various types of engines. 2008, China's economic environment has changed greatly. Under influence of the macro-control, serious natural disasters, the vanished stock market wealth effect as well as implementation of emission standard China’III and a number of factors, the automotive industry ended recent-year momentum of rapid growth, significantly slowing down economic growth.Being confronted with market competition as well as the global financial crisis bring about severe macroeconomic situation, the company adhered to the cause-eading plans to guide, strengthened strategic trends analysis of the automobile industry, market and policy, steadily pushed forward the product adjustment and brand marketing services capacity-building, through deepening of the cost-control, exercising strict control over investment in fixed assets, increased inventory and accounts receivable management, and other basic solid job, etc. strived to reduce the impact of unfavorable factors to a minimum, effectively curbed the negative trend to decline continuously, and ensured the company's continued sound operation. During reporting period, the Company, subsidiary companies, and joint ventures achieved total sales profit RMB 53.038 billion yuan (RMB 13.455 billion yuan coming from consolidation tables); car volume reached 831,000 units with year-to-year decrease by 2.82 %; car sales arrived at 834,500 units, and fell 0.24 percent year-on-year, and sales volume continued to occupy No.4 in the Chinese automotive industry. During reporting period, the Company's profits or the source of profits did not constitute a major change, Changan Ford Mazda Automobile Company is still the largest contributor to corporate profits. Year-on-year net profit and operating profit fell sharply, mainlybecause the investment income return of joint venture dropped and its own investment in car technical research and development continues to increase. The relevant R & D expenses year-on-year increase by39. 24%, and self-brand car business is still in operation, cultivating period. Nanjing Changan did CM6, CM7 full provision for mold fixture amortization assets 26 impairment and led a year-on-year increased loss of RMB118 million yuan. During reporting period, short-term profitability of target has not achieved the desired goal, every business segment profitability remains uneven.However, through solid activity, the Company develops more clear deas, more explicit strategies, increases the level of basic management, and carries out initial construction of the international, professional management system, in particular as well as further adjust product structure in place, and inventory declines saving energy for long-term development of the company. Over a period of time in the future, unremittingly facing macro-economic downturn and the adverse industry adjustment situation, the company will spare no danger, and actively deal with risk of local efforts, and strive in a short period of time to improve the profitability of every business section A.Overall business operaions during reporting period (expressed in RMB ten thousand yuan) Item Year 2008 Year 2007 Changes Revenue 1,337,546 1,372,230 -2.53% Sale profit 4,562 68,691 -93.36% Net profit attributed to Pareant 2,438 66,689 -96.34% cpmpany a.The following table illustrates the Company’s sales by line of business and product category (in RMB ten thousand): The Line of Main Business Revenue Operation Cost Gross magin rate Line of Amount Changes to Amount Changes to Amount Changes to business/product prior year prior year prior year Vehicle Decrease 1,337,546 -2.53% 1,136,866 -2.16% 15.00% manufacturing by 0.32% Main business Decrease Whole vehicles 1,289,369 -1.41% 1,107,895 -0.94% 14.07% by 0.4% Increase by others 48,177 -25.23% 28,971 -33.42% 39.87% 7.4% b.The following table illustrates the Company’s domestic and foreign sales (Expressed in RMB ten thousand): Domestic/Foreign Sales Profit Changes to prior year Domestic 1,256,526 -4.18% Foreign 81,020 33.03% c.Major suppliers and clients In 2008, the purchase by the Company from the top five suppliers reached RMB 1,899.34 million yuan, accounting for 27 16.71% of total yearly purchase; and revenue from the top five clients reached RMB 1,570.46 million yuan, accounting for 11.74% of total yearly revenue. B.The following table illustrates significant changes of the Company’s assets structure and analysis of causes(Expressed in RMB ten thousand) Dec. 31, 2008 Dec. 31, 2007 Proportion in Item Proportion in total Proportion in total total assets Amount Amount assets（%） assets（%） Change(%) Receivable invoice 193,408 12.59% 159,662 11.12% 1.47% Receivable account 39,867 2.59% 69,839 4.87% -2.28% Inventory 166,222 10.82% 179,468 12.50% -1.68% Long-term share equity investment 455,609 29.65% 414,148 28.85% 0.80% Fixed assets 333,311 21.69% 334,433 23.30% -1.61% Construction in progress 85,129 5.54% 26,090 1.82% 3.72% R&D expense 30,816 2.01% 10,071 0.70% 1.31% Short-term loans 109,375 7.12% 17,570 1.22% 5.90% Notes payable 219,688 14.30% 138,945 9.68% 4.62% Account payable 227,565 14.81% 279,107 19.45% -4.64% Year 2008 Year 2007 Increase/ Decrease Sales expense 113,656 124,637 -8.81% Administrative expense 85,274 67,349 26.62% Financial expenses 4,954 4,711 5.16% Asset impairment loss 15,084 4,628 225.93% Investment gain 56,085 93,218 -39.83% income beyond operation 4,851 1,907 154.38% payout beyond operation 6,010 5,205 15.47% Net profit attributable to the owners of parent company 2,438 66,689 -96.34% In the reporting period, the company strenghtened the management of receivables& credit and increased the settlement of invoices to improve the index of velocity of receivables and reduce its proportion in assets. The capital expenses ratio increased for the headquaters’new construction and vehicle plant expansion, engine and technical center project expansion, which raised the 28 ratio of projects in process. In order to reduce the interest expenses, the short-term loans were the main way of banking financing which leads to the obvious increase of short-term loans balance at the end of the period. The ratio of notes payable rised because of the widely use of invoice as the balance method. At the same time, the ratio of accounts payable declined. Administrative expenses increased mainly due to the technical R&D fees booked into gains/losses and increased by RMB 98million yuan compared with the same period last year. The assets impairment losses increased because RMB118million yuan dies&fixtures assets of 0ff-line CM6, CM7 of Nanjing Changan have not completed its amortization and are booked into impairment as a whole. The investment returns decreased mainly because the profit from the JV decreased. Non-operation income increased because the Company got more subsidies by RMB 15.34million yuan for new products increased compared with the same period last year. C.CASH FLOW STATEMENT (Expressed in 10,000RMB yuan) Items Year 2008 Year 2007 Increase /Decrease cash flow from business operation Sub-total of cash inflow 939,378 1,169,558 -19.68% Sub-total of cash outflow 890,894 1,120,795 -20.51% Net cash flow from business operation 48,484 48,764 -0.57% Cash flow generated by investing Sub-total of cash inflow 86,645 75,495 14.77% Sub-total of cash outflow 164,898 39,065 322.11% Net cash flow generated by investment -78,253 36,430 -314.80% Cash flow generated by financing Sub-total of cash inflow 304,337 171,761 77.19% Sub-total of cash outflow 267,972 278,618 -3.82% Cash flow generated by financing 36,365 -106,857 134.03% D.Business operation information and achievement analyses of main holding companies and equity companies a. Basic information of main holding companies and equity companies Total Main Net Registered capital Equity assets( expr operating profit( express Name Main businesses held essed in income( expr ed in RMB 10 RMB 10 essed in thousand 29 thousand RMB 10 yuan) yuan) thousand yuan) Production and sale of Hebei Changan RMB 264.69million 80.11% automobiles and 128,051 381,704 1,227 Automobile Co., Ltd. yuan parts Production and sale of Nanjing Changan RMB 601.81million 73.60% automobiles and 98,715 129,782 -24,644 Automobile Co., Ltd. yuan parts Production and US282.639 sale of Changan Ford million 50% automobiles and 1,094,426 2,534,663 118,316 Mazda Motor Co., Ltd dollar parts Production and Changan Ford US139.2 sale of Mazda Engine Co., million 50% automobiles and 244,366 89,155 -11,086 Ltd dollar parts Production and Chongqing Changan US190 sale of Suzuki Automobile million 51% automobiles and 425,288 721,545 2,750 Co., Ltd dollar parts Production and sale of Jiangling Holding Co., RMB 2billion 50% automobiles and 334,612 61,730 1,030 Ltd. yuan parts Chongqing Changan Sale of RMB 19million Automobile Sale 90-100% automobiles and 50,657 614,314 -224 yuan Subsidiary Company parts Chongqing Chang Automobile export, 1,376RMB 13.76million Automobile agent of import 95% 23,506 81,020 -3,819 International Sale and export yuan Service Co., Ltd Chongqing Chang 4,850RMB 48.5 Sale of 100% 5,019 2,133 -72 Automobile Sale million automobiles and 30 Co.,Ltd. yuan parts Chongqing Changan Sale of 3,000RMB 30million Automobile Service 99% automobiles and 8,696 40,937 546 yuan Co., Ltd. parts Manufacture Chongqing Changan RMB 115.5 and sale for Die Manufacture million 100% 16,255 5,147 -1,114 automobile die Co.,Ltd. yuan and jig New-energy Chongqing Changan RMB 29million Automobile New Engergy 65% 2,828 - -109 yuan manufacturing and Automobile Co., Ltd. sale Sale of Chongqing Anfu RMB42 million 50% automobiles and 23,457 103,068 1,528 Automobile Co., Ltd. yuan parts Production and Chongqing Changan sale of special Special Automobile RMB 5million yuan 50% automobiles and 3,543 15,981 172 Co., Ltd. parts b.Compared to the same period of 2007, Greater fluctuation of operation occurring and influencing significantly Subsidiaries or equity ‘s operation of the Company( expressed in RMB 10 thousand yuan) Name Net profit in 2008 Net profit in 2007 Change（%） Changan Ford Mazda Motor Co., Ltd 118,316 191,737 -38.29% Changan Ford Mazda Engine Co., Ltd -11,086 -29,862 62.88% Chongqing Changan Suzuki Automobile Co., Ltd. 2,750 12,320 -77.68% Jiangxi Jiangling Holding Co., Ltd. 1,030 9,820 -89.51% E. Investment units which the Company is with share proportion of more than 50 percent but not included in the consolidated scope The company holds 51% share options of Chongqing Changan Suzuki Automobile Co., Ltd. But according to its corporate charter "members of the Board will be 6, of whom 3 will be from Changan, accounting for 50% of seats in the board of directors, chairman of the board directors will be from Changan", "major decisions shall be concluded only more than 2/3 directors agree", the Company does not have absolute control over Changan Suzuki company, so Changan Suzuki is not included in the consolidated scope. 31 F. Project situation which fair value has been adopted and its impact on profits due to its change ( expressed in RMB 10 thousand yuan) Chongqing Changan International Trading Company is the Company’s subsidiary company, mainly engaged in the international sale of automobile export business, mainly for the U.S. dollar currency income, and the main expenditure is RMB currency, in order to avoid the risk of the Renminbi exchange rate fluctuations, International Trading Company signed a long-term foreign exchange contracts with the bank to offset foreign exchange risk. Forward foreign exchange contracts with the exchange rate locked at the balance sheet date exchange rate revaluation of the balance of the transaction confirmed as financial liabilities. In order to regulate the management and effective control over the fair value associated with the operation and measurement business, the Company authorized run-of-mill long-term exchange rate locking operations to the International Trading Company, and the Company, in accordance with relevant provisions in "Accounting Standard for Business Enterprises" and "the basic norms of internal control" issued by the Ministry of Finance, the acquisition, measurement, disclosure, assumptions of use and the appropriate method of fair value have been chosen carefully, in strict accordance with the Accounting Standards for accounting of the relevant provisions, to receive internal and external audit and supervision. During the reporting period due to changes in fair value of the transaction confirmed the above-mentioned reduction of financial liabilities 9,773,400 yuan of profits. change of capital at the gains/losses due to Provision of closing balance at accumulated fair beginning of fair value change in impairment of the end of the Items value that has been the period the period assets period booked into interests financial asset： Incld.：1 financial assets being booked as fair value and the change being booked into gains/losses of this year Incld.： derivative financial assets 2. sellable financial assets subtotal of financial assets financial debts -977.34 977.34 Investment-type real estate productive biological assets others total -977.34 977.34 G. Held foreign currency assets and financial debts( expressed in RMB 10 thousand yuan) 32 gains/losses change of capital at the Provision of closing balance at due to fair value accumulated fair items beginning of the impairment of the end of the change in the value that has been period assets period period booked into interests financial asset： Incld.：1 financial assets being booked as fair value and the change being booked into gains/losses of this year Incld.： derivative financial assets 2. loans and receivables 14,462 11,645 3. sellable financial assets 4. assets being held till mature subtotal of financial assets 14,462 11,645 fiancial debts -977.34 977.34 H. The reasons and inluence of change on accountant policy, accountant assumption or correction of key accountant mistake There was no change on accountant policy, accountant assumption or correction of key accountant mistake during the reporting period. (2)Prospect for the further development A. Prospect for the further development At present, the global financial crisis has not yet bottomed out, and the world's automotive industry faced unprecedented challenges and difficulties. As a result, China's auto industry is also facing the enormous uncertainties and risks. However, the central government implemented a series of stimulating the economy and stable development of measures to secure GDP 8% growth with effective measures, strong confidence, and especially the timely introduction of the automobile industry restructuring, revitalization and planning, and issued such good policy as introducing the car to the countryside for the Chinese auto market to bring new opportunities for development. Therefore, the Chinese automobile industry tending to prospect in the long-term has not changed its basic condition and has broad development prospects. The financial crisis for the Chinese own brands in automotive industry, no doubt, is a major strategic opportunity. In particular, the Company's mini-van, small displacement sedan, new-energy car, &other key products, and technical innovation route, are in line with national policy priorities in the automotive industry to support the automotive companies, in line with the society and the automotive industry trends. At the same time, in 2009 the Company was the included among the country-larrgely-supported 33 enterprises, was supported for merger and reorganization throughout the country creating good conditions for the company's future development. In 2009, the Company will strengthen the strategic analysis, change crisis into opportunity, deepen the implementation, and to construct itself into the outstanding international automotive company. B. Production and Operating Plan for 2009 The operation task of 2009 is very tough. The management team will continue to implement Career Leading Programme, lead all the employees to implement the guidline of “based on minivan, focused on sedan, explore overseas market and strengthen JV &Cooperation management” with attic faith and unprecedented sense of crisis to ensure the realization of the annual operation task. The operation task of 2009 is that try to produce and sell more 900,000 vehicles and sales revenue exceeds RMB 50 billion yuan (RMB 15.5billion yuan coming from consolidate table). C. Capital Demand and its use plan in 2009 In order to realize the annual operation target of 2009, it is expected that the Company will monthly need about RMB1.25billion cash flow and yearly capital expenditures will be 1.5billion yuan, among which, RMB 1billion will goes to fixed assets investment mainly for phase-2 CB engine construction, phase-3 G series engine construction, phase-2 vehicle production line in industrial zone, and phase-2 Automotive Engineering Institute construction, etc. On the other hand, the Company plans to repurchase B share with no more RMB 800 million yuan. Based on the operation and financing status, the Company’s capital demand will mainly rely on self-owned capital, sales income capital, Joint venture dividends, short-term bond issuing and loan from banks etc. D. The analysis about adverse factors for realization of the Company’s development strategy & operating objectives and effective solution In 2009, the primary risks which the Company will be confronted with include： a.Risk of macro-economic environment, global financial market fluactuation getting even worse&increased uncertainties which have great impact on the entities and growth of domestic auto industry as a whole slowed down and the profit decreased. b.Risk of cultivation indigenious brand, the Company’s indigenious sedan is still at the initial stage while the brand establishement will be a long and hard process. c.Risk of exploring international market: as the global financial crisis and fluctuation of exchange rate, the Company’s overseas sales strategy will face great pressure and challenges. The Company will take the measures below to minimize the impact of such risks: a.Strenthen the study on domestic and abroad micro-economy, find out the opportunities and risks, follow the trend of 34 economy so as to instruct the strategy and operation decision of the Compnay. Timely grasp and use national and local incentives to improve the Company’s ablity to handle risks, meanwhile, reduce the cost and increase the profit dramatically. b.Kick-off of “Changan Sedan” indigenious brand strategy, enhance the brand meaning and popularity, strengthen brand image with sience & tech, quality continuously. Together with the product strategy, spare no efforts to manufacture core product so that the repulation and popularity of Changan sedan brand will be highlighted significantly through marketing and service. c.For overseas market, strengthen the study on the key market; refine the products, marketing tactics for each key market. Re-establish key markets and products, collect resources, focus on key programme and strengthen price management and risk defending at the same time. 2. Investments of the Company in the reporting period (1)Investments of the Company During the reporting period, the Company mainly completed the capital injection to Jiangling Holding, Changan Ford Mazda Motors Co., Ltd., and Chongqing Changan Die& Moulding Co., Ltd and completed newly establishment of Chongqing Changan New Energy Automobile Co., Ltd. The details go as below： A. Subject to the approval of 13th meeting of the 4th session BOD held on Jan.10, 2008, the Company injected RMB 500 million yuan with self-owned capital to Jiangling Holding. After the injection, the rgistered capital of Jiangling Holding is RMB 2 billion yuan. The Company’s share in the JV is still 50% without any change. B. Subject to the approval of 15th meeting of the 4th session BOD held on Feb.14, 2008, the Company injected US 29 million dollars with self-owned capital to Changan Ford Mazda Motors Co., Ltd. After the injection, The Company’s share in the JV is still 50% without any change. C..Subject to the approval of 16th meeting of the 4th session BOD held on Mar.24, 2008, the Company injected RMB 65.50 million yuan in the form of land and cash to the subsidiary, Chongqing Changan Die& Moulding Co., Ltd. D. Subject to the approval of the general manager, the Company signed an agreement with Chongqing Science-tech Venture Investment Co., Ltd in May 2008 to jointly establish Chongqing Changan New Energy Co., Ltd by cash with a registered capital of RMB 29 million yuan. Among which, the Company paid 18.85million to take 65% of the equity while Chongqing Science-tech Venture Investment Co., Ltd paid 10.15million yuan to take 35% of the equity. The main business of Chongqing Changan New Energy Co., Ltd are new energy vehicle R&D, relevant components R&D and manufacture, marketing service etc. The purpose of cooperation is dedicating to new energy vehicle business and establishing R&D platform of new-energy vehicle technology and new automotive technology. 35 The above-mentioned investment programmes have completed relevant industrial and commercial register procedures during the reporting period. As for the information on the invested companies, see the major shareholding companies’ operation and performance in the chapter. (2)The use of proceeds from previous public offering There is no use of proceeds from previous public offering during reporting period. (3)The use of proceeds other than from previous public offering (Expressed in RMB 10 thousand yuan) No. Investment programme Invested this year Schedule Anticipated Earnings 1 vehicle programme 12,379 In progress 2 engine programme 9,477 in progress Included in the overall earnings 3 TechnologyDevelopment Centre 7,176 in progress of the Company 4 Industry Zone 51,063 in progress 5 others 25,843 in progress Total 105,938 3. The Routine of the BOD (1)The meetings of the BOD during the reporting period, there are 10 BODs and 33 resolutions have been passed. Related resolutions have been disclosed as temperary report on China Securities, Securities Times and Hong Kong Commercial Daily and http://www.cninfo.com.cn. Meeting held as follows： A. The fourth session of the Board of the Directors’ thirteenth meeting was held on Jan. 12, 2008, and the proposal of injecting self-owned RMB 500 million yuan capital to Jiangling Holding Co., Ltd was passed through conference call. B. The fourth session of the Board of the Directors’ fourteenth meeting was held on Jan. 25, 2008, and the proposal of changging the Company’s senior management was passed through conference call. C. The fourth session of the Board of the Directors’ fifteenth meeting was held on Feb. 14, 2008, and the proposal of injecting capital to Changan Ford Mazda Motors Co., Ltd was passed through conference call. D. The sixteenth meeting of fourth-session BOD was held on Mar. 24, 2008. the following proposals were passed through the meeting: 2007 BOD report, 2007 general manager report, 2007 annual report and its abstract, 2007 financial settlement report, 2007 profit distribution proposal and transferring from capital reserve to equity proposal, 2008 daily related party transaction proposal, V101 production line technical upgrade proposal, G-series engine capacity expansion proposal, injecting RMB 65.5 million yuan to Chongqing Changan Die&Moulding Co., Ltd, general loan application amount from financial corporation of CSG, annual report work regulations of the auditing committee, annual report work system for independent directors, change of 36 consolidated financial statement after new accountant principle& shareholers’ interests adjustment at the beginning of the year and the notice for 2007 annual shareholders’ meeting. E. The seventeenth meeting of fourth-session of the BOD was held on April 28th, 2008, and 2008 first quarter report was passed through conference call. F. The eiteenth meeting of fourth-session BOD was held on July 17, 2008, and Improvement Report on Company Governance on Special Activity was passed. G. The ninteenth meeting of fourth-session BOD was held on Aug. 29, 2008, and the proposals were passed such as 2008 annual report and its abstract, 2008 certified public accountant employment, modification on Company Chapter, change of independent directors, change of directores and senior managements, preparation for subsidiaries’ extract depreciation, applying for issuing RMB 2.6 billion yuan short-term bonds, operational related party transaction with Changan Minsheng APLL Logistics Co., Ltd and notice of 2008 first temperary sharholder meeting. H. The twentith meeting of fourth-session BOD was held on Oct. 30, 2008, and the 2008 Third-Quarter report was passed through conference call. I. The twenty-first meeting of fourth-session BOD was held on Dec. 10, 2008, and the proposal to lend money to the Company’s subsidiary named Chongqing Changan International Sales Service Co., Ltd was passed through conference call. J. The tweenty-second meeting of fourth -session BOD was held on Dec. 30, 2008, and the proposals of increasing 2008 daily related party trasaction, by-election of committee members to audit committee and disposal of 2008 scrapped fixed assets were passed through conference call. (2)The BOD’s accomplishment of resolution passed in the General Shareholds’ Meeting During the reporting period, the Company’s BOD faithfully executed all resolutions of the general shareholders’meetings, completed the transffering from reserves to share, instructed the management team to promote the technical improvement of V101 production line and capacity expansion of G-series engine etc. (3)Auditing committee’s duty execution The BOD auditing committee comprised of 5 persons, among whom, three are independent directors. The chief of the Committee is Mr. Peng Shaobing who is independent director with majoring in account. Based on the regulations of China Securities Regulatory Commission & Shenzheng Stock Exchange and detailed implement rules of the BOD auditing committee, the Committee fulfils the following work on the priciple of deligency and doing the duty： ①The BOD auditing committee earnestly reviewed 2008 annual audting plan and relevant documents, consulted with 37 certified public accountant of Ernst&Young taking charge of auditing of the Company and defined the plan for 2008 annual auditing financial report of the Company. ②The certified public accountants earnestly reviewed the preliminary financial statement before going into the Company, and made review conmments in written. ③The auditing committee with the certified public accountants exchanged ideas on the issues found during the process of auditing and on the timing to submit the auditing report as the certified public accountant sentered into the Company. ④The Board of director’s auditing Committee held a meeting on Arpil 22, 2009 when Ernst & Young made the 2008 annual auditing report, summarized the auditing work of Ernst & Young and voted on the annual fiancial statement of the Company and proposals of employing next-year accountant institute and got a resolution. 4、2008 Profit Distribution Draft Scheme （1）cash bonus of the previous three years as follow： proportion of net profit attributed to net profit attributed to parent cash bonus(including tax) parent company owners in company in consolidation tables consolidation tables Year 2007 0 666,893,972 - Year 2006 97,250,952 519,444,805 18.72% Year 2005 97,250,952 236,750,289 41.08% （2）2008 profit distribution draft scheme Net annual profit for 2008 is RMB 24,380,962 yuan (RMB 34,620,411 yuan in accordance with international accounting standard), which plus undistributed profit RMB2,720,578,308 yuan at the begining of the year, the distribution profit available for shareholders amounting RMB 2,744,959,270 yuan. This amount is deducted by 24,687,200 yuan, 2008 legal surplus capital reserve and the undistributed profit is RMB 2,720,272,070 yuan (RMB2,551,600,058yuan after international accounting standard adjustment). Based on the regulations of Chinese Enterprise Accountant Principle and International Financial Report Principle, the lower one will be the limit of the profit distrbution. Therefore, the profit available for distribution for 2008 is RMB 2,551,600,058yuan. At the end of 2008, the currency capital balance of the Changan headquater is RMB1,166,965,438 yuan. 2008 annual profit distribution draft of the Company goes as follows: the total share 2,334,022,848 of the Company on Dec.31st, 2008 as the base, the total cash sent to all the shareholders in the term of RMB 0.18 yuan for every 10 shares amounts RMB 42012411.26 yuan (including tax). 5. Other Items During the report period, it is the same publication for information disclosure of the Company, and they are China Securities, Securities Daily and Hong Kong Business. 38 IX Report by the Board of Supervisors 1. The basic information of the meeting During the reporting period, there are four meetings of the Supervisory Board： (1) The eighth meeting of the fourth-session Supervisory Board was held on March 24, 2008 and the report by the Board of the Supervisors for the year 2007, the annual financial report and the extract for the year 2007, the final financial settlement for the year 2007, and proposal of daily related party transactions for the year 2008 were discussed and passed. (2) The ninth session of the Board of the Supervisors’ fourth meting was held on April 28, 2008 and the financial report of the 2008 first quarter was passed through conference call. (3) The tenth session of the Board of Supervisors’ fourth meeting was held on August 29, 2008 and the 2008 semi-annual financial report, the extract and proposal of Chongqing Changan Minsheng APLL Logistics Company’s daily related party transactions were discussed and passed. (4) The eleventh session of the Board of the Supervisors’ fourth meting was held on Oct.30, 2008 and the financial report of the 2008 third quarter was passed through conference call. 2. The working result by the Board of Supervisors During the reporting period, all the supervisors of the Company sat in all the meetings of the Board of the Directors, give their independent opinions and exercise the right of the supervision. In accordance with the Company Law and the Article of the Association, the supervisors exercise following rights： (1) Supervision of the compliance issues of the Company in its operation and management. The Board of Supervisors performed its supervisory duties through sitting in the meetings of Board of Directors. The Board of Supervisors was of the view that the decision-making procedures of the Company were in compliance with the Company Law and the Articles of Association, a proper internal control system had been established, and there had been no violations of the laws, regulations and the Articles of Association and no acts harmful to the interests of the Company by the directors, supervisors and senior managers in fulfilling their duties. (2)Review of the financial status of the Company Through its review, the Board of Supervisors was of the view that the financial statements of the Company had been in compliance with relevant standards and regulations and truly reflected the financial status and operating 39 performance of the Company. The auditor of the Company, ERNST&YOUNG issued an audit reportwithout reservation. (3)Supervision of the use of proceeds from the public offering During the reporting period, the Company has no public offerings being used during the reporting period. Through its review, the Board of Supervisors was of the view that the non-public capital was mainly invested in technology refreshing of the vehicle and engine production line, and in the joint ventures. (4) Supervision for the acquisition and disposal of the assets Through its review, the Board of the Supervision was of the view that the price of the acquisition and disposal of the assets was fair and reasonable and there is no under-table transaction, no acts harmful to the interests of the shareholders or leading to the loss of Company’s assets. (5)Supervision of the related party transaction Through its review, the Board of Supervisors was of the view that all related party transactions had been conducted fairly with pricing based on the market prices that are fair and there had been no harm done to the interests of the Company. 40 X. Important Matters 1. There are no major litigations and arbitrations during the reporting year. 2. There is no acquisition, disposal of asset, and merger this year. 3. The Company, Holding Shares of other Listed Company, and Non-Listed Financial Company or Company to Be Listed: (1) IAt the end of reporting period, Company holds the 5.33% share of China South Industries Group Corp., initial investment capital cost is RMB 80,000 thousand yuan and the account price at the end of reporting period is RMB 80,000 thousand yuan. (2) In the end of reporting period, the Company holds 1.07% shares of South-western Securities Co., Ltd. (Hereafter referred to as " South-western Securities ") and the account price is 22988 thousand Yuan. According to the requirement of Chongqing municipal government on the Southwest Securities’ reform and recombination, the Company signed Share Entrustment Agreement with Chongqing Yufu Asset Management Co. Ltd that is a state-owned company under the Chongqing municipal government, entrusting Chongqing Yufu Asset Management Co. Ltd to manage the shares held by the Company in Southwest Securities. February 26, 2009, after being approved by the China Securities Regulatory Commission with license 【2009】 62, 63 documents, The significant asset sales and new shares merger for Southwest Securities Company Ltd. by Chongqing Changjiang Water Transportation Co., Ltd. (referred to as Changjiang Water Transportation, the Securities Code: 600369) as a major asset restructuring has been completed, and the new increased shares registration and company registration in Industrial &Commercial Bureau have been completed. Southwest Securities changed its name to Southwest Securities Co., Ltd. and has been listed on Shanghai Stock Exchange (referred to Southwest Securities, the Securities Code: 600369).The Company is the stockholder of Southwest Securities, with 17,750,000 shares and 0.932% in general capital. The limit of the shares sale is 36 months. (3) In the reporting period, the company has no trade for other shares of listed companies 4. Significant related party transactions In the reporting period, the information of the related party transactions with the accumulated amount over RMB30 million yuan and the net assets amounting over 5% through latest auditing is as follows： (1) Transaction Category—Car part &component purchasing and car saling In the reporting period, the Company purchased automobile parts and components from the subsidaries of China South Industry Automobile Co. Ltd.: Jian'an Automobile Axle Branch Company, Ningjiang Shock-absorber Branch Company, Tsingshan transmission Branch Company with the market price. The total transaction amount is RMB 841,820 thousand yuan, which 41 comprises 7.40% of the total same-type transaction amount. In the reporting period, the Company sold automobiles to Chengdu Wanyou Economic Development Co., Ltd. at market price. The total transaction amount is RMB 747,320 thousand yuan, which comprises 5.59% of the total same-type transaction amount. In the reporting period, the Company sold automobiles to Southwest Industries Corporation at market price. The total transaction amount is RMB 389,920 thousand yuan, which comprises 2.92% of the total same-type transaction amount. In the reporting period, Chongqing Changan Minsheng APLL Logistics Co. Ltd. (CMA Logistics Co. Ltd.) provides whole-vehicle transportation, automotive part& component supply chain management and logistics service to the Company with the market price. The total transaction amount is RMB 548,070 thousand yuan, which comprises 100% of the total same-type transaction amount. (2) Related-Party Transaction Impact on the Company Jian'an Automobile Axle Branch Company, Ningjiang Shock-absorber Branch Company, Tsingshan transmission Branch Company under China South Industries Automobile Co., Ltd are the mass producer of the automobile parts&components with the large capability and good quality, from whom the purchase could lower the cost and be good to the R&D of the new parts &components. The purchase from such related parties is necessary and will still go on in the future. Chengdu Wanyou Economic Technological Development Co., Ltd. is the automobile dealers of the Company since it has established mass sales system which is favourable for the sales of the Company’s product. The dealership of related parties is necessary and will still go on in the future. Chongqing Changan Minsheng APLL Logistics Co. Ltd. (CMA Logistics Co. Ltd.) is the professional provider of the logistic service, which is good to the logistic management of the Company. Such transaction is necessary to the Company’s sales and production and will still go on in the future. The above mentioned transaction is dealt with the market price or the presumption price, and is fair and reasonable, which is necessary to the Company’s business and does no harm to the Company and the non-related shareholders’ benefits. 5. Major contracts and their fulfillment (1) There were no major entrustment, contracting the assets of other companies for the Company and there were no major entrustment, contracting of the Company’s assets by other companies. The lease of the assets of other companies by the Company and lease of the Company assets go as follows： According to the production needs, the Company rented the office building of Changan Automobile (Group) Company’s Sales Branch, the total area is 4,560 square meters, the monthly rental is RMB 40 yuan per sq. m., the remaining building is 37,158.1 42 square meters and monthly rental is RMB 35 yuan per sq. m. The Company rented 405,152 square meters land of Changan Automobile (Group) Company, monthly rental is RMB 15 yuan per sq. m. The company rented 2,803 square meters land in Cuntan of Changan Automobile (Group) Company for production building and office，monthly rental is RMB 35 yuan per sq. m. The company rented 4,863 square meters land in Dashiba of Changan Automobile (Group) Company for production building and office，monthly rental is RMB 35yuan per sq. m. The Company rented 216,005 square meters land in Cuntan of Changan Automobile (Group) Company，monthly rental is RMB 15 yuan per sq. m. Changan Automobile (Group) Company rented 5th, 8th, 9th and 10th floors of the Science and Technology Building of the Company due to office needs, the area is 9,056 square meters and monthly rental is RMB 40 yuan per sq. m. In 2009, because of the business need by the Company and its subsidiary companies, the Company rented the right to use part of the land lease and housing (hereinafter referred to as "rental property") from Changan Automobile (Group) Company and its affiliates; Changan Automobile (Group) Company, due to its need of office, rented the Company technology building. The two parties have signed a framework agreement on leasing the property, the agreement on basic principles, leasing purposes, the cost of settlement and payment, dispute settlement and other issues has a three-year validity. A. The basic principle: the provisions of the lease contract terms and conditions on specific matters of property lease entered into by both parties must be fair and reasonable, as well as with an independent third party as a normal commercial transaction base. In any case, Changan Automobile (Group) and its subsidiary companies shall not seek or accept lease the any better property lease conditions given to the Company and its subsidiary companies than to an independent third party. B. The determination of the rent and the cost: the determination principles for the company and its subsidiary companies with Changan Automobile (Group) and its subsidiary property leasing transactions rentand cost, is firstly as the same properties price comparable to market prices, if without comparable market price, price to be determnined at fair value consultation. During the validity period of the lease, the two sides, in accordance with the market lease price or fair market rent value, adjust costs and rent. Specicfic adjustment cycles will be prescribed in the lease contract signed by the two sides or their sunsidaries. Related party transactions above the company's relevant laws and regulations in line with the protocol and system, the two sides are trading at a market economy under the principle of fair and reasonable manner, in order to achieve the purpose of mutual benefit. Related party transactions do not influence the company's independence, and there is no damage to the Company and non-associated shareholders. (2) Major guarantee：In order to support the development of the dealers, better make use of the financial tools offered by the banks, expand the financing channels, strengthen the ability of the dealers and promote the sales of the Company, the Company 43 signs the Auto Sales Finance Service Network Protocol with China Everbright Bank, China Citic Bank and Agricultural Bank of China The banks mentioned above grant the company with stated credit ability of RMB 2.95 billion yuan in total that is used only for opening accepted document for the dealers. In order to promote the sales of Hebei Changan and Nanjing Changan, the company authorizes Hebei Changan and Nanjing Changan to use part of the credit ability. The dealers of Hebei Changan and Nanjing Changan can use the acceptance opened under the protocol mentioned above to buy the vehicles of Hebei Changan and Nanjing Changan. When the acceptance period expire, if the dealers of Hebei Changan or Nanjing Changan cannot hand in the amount of money got from the bank, the sales period can be lengthened for three months. In case when the three months postpone period expire when the dealers cannot sell the inventory vehicles, the company will buy the vehicles according to the repurchase price and deposit enough money to the designated account of the bank in time. Hebei Changan and Nanjing Changan promise that if they should take the re-purchase responsibility under the protocol, they would hand the amount of money the company deposit to designated account of the bank within three days and deal with the problems arising from the delay. The Status of using credit amount of Hebei Changan and Nanjing Changan: during the reporting period, the dealers of Hebei Changan dealer totally used RMB 307 Million yuan and opened RMB 792 Million yuan of bank acceptance from finance service network bank; the dealers of Nanjing Changan dealer totally used RMB 116 Million yuan and opened RMB 227 Million yuan of bank acceptancel of finance service network bank. At the end of reporting, Hebei Changan dealer owed RMB 306 Million yuan of bank acceptance, Nanjing Changan dealer owed RMB 168 Million yuan of bank acceptance. (3) Asset entrustment: There is no entrustment or no continuous entrustment of cash management occurring in the reporting period except for loans entrustment. According to the directorate’s decision of Nanjing Changan on November 3, 2007, Nanjing Changan as the entruster has delivered a trust credit of RMB 23.50 million yuan to Lishui State-Owned Asset Holding Company Limited through the Lishui sub-branch of Bank of China. The Above three parties signed a 24-month trust credit contract with the annual rate of 7.2% on November 28th, 2007. The interest started to execute from November 29, 2007. 6.Commitment： The commitments of China South Industry Automobile Co., Ltd.--the controlling shareholder of the Company--for the reform of the decentralization of the shareholding rights: (1) To comply with laws, rules and regulations, and perform legal duty of commitment. (2) Since the non-circulated shares are entitled to be circulated, at least they can’t be dealt with or transferred within 24 months. At the expiration of 24 months, the shareholders of non-circulated shares can sell the shares in stock exchange in amount of no 44 more than 5% of total within 12 months, and no more than 10% of total within 24 months. (3) After the reform of non-tradable shares, the Company performs the scheme of incentive share awards for the managements according to relative government regulation. 7. According to the resolution agreed on first temporary shareholders meeting held on September 19, 2008, the Company appointed Ernst & Young to be the audit institution for the year of 2008, currently the audit institution will provide audit services for a period of 2 years, and its auditing cost is RMB3.4 million yuan. The cost for the report of this year has not yet paid to Ernst & Young. 8. During the reporting period, nor did the Company, the Board and its directors receive any check, disciplinary punishment, public criticism or public censure from China Securities Regulatory Commission, and publicly condemned from the stock exchange. 9. Other Important Items (1) According to the resolution agreed on second temporary shareholders meeting held on March 3, 2009, the Company intends to repurchase not more than 423 million of foreign shares listed in china B shares within 12 months starting from the date of being approved by the General shareholders meeting, each share buy-back price will not be higher than HK dollar 3.68 / share, and the total amount of repurchase price will not be more than 909 million HK dollar. At the expiry of the above-mentioned buy-back or repurchase after the implementation of the program, the company will write-off of repurchase in accordance with the law of the B shares, a corresponding reduction in registered capital will be done. (2) The research and interview reception during the reporting period During the reporting period, the Company received the research and production line visit from domestic and overseas fund management company, securities company, investment institute and so on. During the communication with the investors, related personnel of the company strictly followed the regulation of Shenzhen Stock and Exchanges’s instruction for Information Fair Release for Listed Companies, Management Regulations on Investment Relationship and Management System on Information Disclosure did not selectively or privately release, reveal or disclose non-published important information to special persons or companies, guaranteeing the fairness of information release. Registration Table of Survey, Communication, Reporting Material Gathering and Other Activities Taking place in the Company during the reporting period Reception Date Reception Venue Manner Visitors Main Discussion Content and Provided Documentation Chongqing Plant, Changan Ford On-Site East Huili Assets Jan. 29th, 2008 Mazda Plant Visiting Survey Management Co., Ltd. Automobile Co., Ltd Chongqing Plant, Changan Ford On-Site ChangFeng Capital Jan. 31st, 2008 Mazda Plant Visiting Survey Investment Company Automobile Co., Ltd Meeting Room, On-Site Automotive Industry Development, April 1st, 2008 Changan CITIC Securities Co., Ltd Survey Company’s Business and Plant Visting Headquarters 45 Meeting Room, On-Site First State Asset Automotive Industry Development, May 7th, 2008 Changan Survey Management Company Company’s Business and Plant Visiting Headquarters Meeting Room, On-Site American General Fund Automotive Industry Development, May 14th, 2008 Changan Survey Management Co. Company’s Business and Plant Visiting Headquarters Meeting Room, The Securities of On-Site Automotive Industry Development, May 15th, 2008 Changan Guangzhou Development Survey Company’s Business and Plant Visting Headquarters Bank Meeting Room, On-Site China’s Bank International Automotive Industry Development, Changan May 20th, 2008 Survey Securities Company’s Business and Plant Visiting Headquarters Meeting Room, On-Site BOSHI FUND Automotive Industry Development and Jul. 17th, 2008 Changan Survey MANAGEMENT CO.,LTD Company’s Business Headquarters Meeting Room, On-Site Automotive Industry Development and Jul. 22nd, 2008 Changan Piper Jaffray Survey Company’s Business Headquarters Meeting Room, On-Site Morgan Stanley and its Automotive Industry Development and Aug. 19th, 2008 Changan Survey customers Company’s Business Headquarters Meeting Room, On-Site Bisheng asset Automotive Industry Development and Aug. 25th, 2008 Changan Survey management company Company’s Business Headquarters Meeting Room, Taikang asset management Automotive Industry Development, On-Site Oct. 24th, 2008 Changan company Company’s Business and Plant Visiting Survey Headquarters Meeting Room, Research-Works Automotive Industry Development, On-Site Nov. 13th, 2008 Changan Investment & Inquiry Company’s Business and Plant Visting Survey Headquarters Company and its customers Meeting Room, Swiss Credit Bank and Automotive Industry Development and On-Site Nov. 24th, 2008 Changan Capital Group Company’s Business Survey Headquarters 46 Auditor’s Report Ernst & Young Hua Ming (2009)Shen Zi No 60662431_B01 To the shareholders of Chongqing Changan Automobile Company Limited We have audited the accompanying financial statements of Chongqing Changan Automobile Company Limited (“the Company”) and its subsidiaries’ (“the Group”), which comprise the consolidated and the company balance sheets as at 31 December 2008, and the consolidated and the company income statements, the consolidated and the company statements of changes in equity and the consolidated and the company cash flow statements for the year then ended and notes to the financial statements. Management’s Responsibility for the Financial Statements The management is responsible for preparing financial statements in accordance with Accounting Standards for Business Enterprises. This responsibility includes (1) designing, implementing and maintaining the internal control relevant to the preparation of the financial statements that are free from material misstatement whether due to fraud or error; (2) selecting and applying appropriate accounting policies; and (3) making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Chinese Auditing Standards issued by the Chinese Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain a reasonable assurance as to whether the financial statements are free from 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 the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider the internal control relevant to the entity’s preparation of 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. (the terms shall be used in circumstances other than when we are engaged to express an opinion on the effectiveness of the internal control based on our audit of the financial statements)] An audit also includes evaluating the appropriateness of the accounting polices used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 47 Auditor’s Responsibility (continued) We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements of the Company have been prepared in accordance with Accounting Standards for Business Enterprises, and present fairly, in all material aspects, the financial position of the Group and the Company as of 31 December 2008 and the results of the operations and the cash flows for the year then ended. Ernst & Young Hua Ming Chinese Certified Public Accountant: Wang Yang Beijing China Chinese Certified Public Accountant: Wu Xiang 23 April 2009 48 Chongqing Changan Automobile Company Limited CONSOLIDATED BALANCE SHEET 31 December 2008 (Expressed in Renminbi Yuan) Notes VI 2008 2007 ASSETS Current assets: Cash 1 1,624,164,158.93 1,583,706,500.04 Notes receivable 2 1,934,083,074.98 1,596,620,506.83 Accounts receivable 3 398,665,913.84 698,386,639.62 Prepayments 4 264,265,866.41 370,607,759.19 Other receivables 5 94,522,595.69 150,730,002.93 Inventories 6 1,662,215,300.65 1,794,682,010.47 Other current assets 7 29,913.95 308,325.00 Total current assets 5,977,946,824.45 6,195,041,744.08 Non-current assets: Long-term equity investments 8 4,556,089,383.26 4,141,477,745.86 Investment real estates 9 68,646,801.42 70,532,811.08 Fixed assets 10 3,333,111,102.01 3,344,327,402.28 Construction in progress 11 851,287,528.26 260,899,239.57 Project materials 12 3,147,070.12 6,279,679.78 Intangible assets 13 114,867,134.54 92,651,418.82 Development expenditure 14 308,158,911.20 100,710,739.51 Goodwill 15 9,804,394.00 9,804,394.00 Long-term deferred expenses 16 5,232,237.70 3,302,027.50 Deferred tax assets 17 139,533,457.58 127,890,521.00 Total non-current assets 9,389,878,020.09 8,157,875,978.81 TOTAL ASSETS 15,367,824,844.54 14,352,917,722.89 The notes on pages 19 to 115 form an integral part of these financial statements. 49 Chongqing Changan Automobile Company Limited CONSOLIDATED BALANCE SHEET (continued) 31 December 2008 (Expressed in Renminbi Yuan) LIABILITIES AND Notes VI 2008 2007 OWNERS’ EQUITY Current liabilities: Short-term loans 20 1,093,749,195.04 175,700,000.00 Short-term Bonds payable 21 - 513,680,000.00 Transactional financial liabilities 22 9,773,408.00 - Notes payable 23 2,196,879,136.98 1,389,450,000.00 Accounts payable 24 2,275,651,448.09 2,791,066,484.98 Advances receipts 25 909,476,064.71 749,440,570.96 Employee compensation payable 26 110,874,454.46 106,425,055.26 Taxes payable 27 58,456,822.80 50,762,719.76 Interest payables 1,200,000.00 - Dividend payables 83,148.19 - Other payables 28 367,301,503.09 339,937,992.19 Contingent liabilities 29 213,392,484.92 205,137,407.04 Other current liabilities 30 345,932,573.07 274,052,766.58 Total current liabilities 7,582,770,239.35 6,595,652,996.77 Non-current liabilities: Deferred income 31 37,939,992.97 31,232,786.52 Other non-current liabilities 32 38,493,000.00 38,316,000.00 Total non-current liabilities 76,432,992.97 69,548,786.52 Total liabilities 7,659,203,232.32 6,665,201,783.29 Owners’ equity: Share capital 33 2,334,022,848.00 1,945,019,040.00 Capital reserves 34 1,499,260,947.64 1,889,189,593.17 Surplus reserves 35 1,042,968,948.06 1,018,281,747.50 Retained earnings 36 2,720,272,069.26 2,720,578,307.73 Interests belong to parent company 7,596,524,812.96 7,573,068,688.40 Minority interests 37 112,096,799.26 114,647,251.20 Total owners’ equity 7,708,621,612.22 7,687,715,939.60 TOTAL LIABILITIES AND OWNERS’ EQUITY 15,367,824,844.54 14,352,917,722.89 The notes on pages 19 to 115 form an integral part of these financial statements. The financial statements on pages 3 to 19 have been approved by: Legal representative： Principal in Charge of Accountancy： Chief Accountant: 50 Chongqing Changan Automobile Company Limited CONSOLIDATED INCOME STATEMENT 2008 (Expressed in Renminbi Yuan) Notes VI 2008 2007 Operating revenue 38 13,375,458,430.72 13,722,299,142.67 Less: Operating cost 38 11,368,659,131.94 11,619,462,125.94 Business tax and surcharges 39 322,563,843.47 334,863,583.38 Operating expenses 1,136,557,740.87 1,246,368,598.38 General and administrative expenses 852,742,365.00 673,492,043.31 Financial expenses 40 49,544,519.16 47,105,949.12 Impairment loss on assets 41 150,838,471.37 46,276,338.76 Add: Profit and loss from fair value changes 42 (9,773,408.00) - Add: Investment income 43 560,845,000.54 932,183,208.53 Including：from associates 1,718,428.20 1,196,543.45 from joint venture 547,491,413.21 905,987,455.94 Operating profit 45,623,951.45 686,913,712.31 Add: Non-operating income 44 48,507,794.50 19,073,037.62 Less: Non-operating expenses 45 60,104,451.06 52,047,682.88 Including：loss on disposal of non-current assets 47,667,642.80 47,498,496.72 Total profit 34,027,294.89 653,939,067.05 Less: Income tax expense 46 16,096,232.98 19,966,287.46 Net profit 17,931,061.91 633,972,779.59 Net profit belong to parent company 24,380,961.59 666,893,971.66 Minority of profit and loss (6,449,899.68)(32,921,192.07) Earnings per share Basic earnings per share 44 0.01 0.29 The notes on pages 19 to 115 form an integral part of these financial statements. 51 Chongqing Changan Automobile Company Limited CONSOLIDATED STATMENT OF CHANGES IN SHAREHOLDERS’ EQUITY 2008 (Expressed in Renminbi Yuan) 2008 Interests belong to parent company Share capital Capital reserves Surplus reserves Retained earnings Sub Closing balance in 2007 and Beginning Balance In 2008 1,945,019,040.00 1,889,189,592.67 1,018,281,748.00 2,720,578,307.73 7,573,068,688.40 Changes during the year I Net profit - - - 24,380,961.59 24,380,961.59 II Gain and loss directly put into equity 1. Effect of changes of other owners’equities of investees under equity-method - 200,000.20 - - 200,000.20 2. Others - (2,388,727.54) - - (2,388,72 Subtotal of I and II - (2,188,727.34) - 24,380,961.59 22,192,234.25 III Input by investors and decrease in capital 1. Capital input by investors - - - - 2. Purchase of minority interests of subsidiaries - 1,263,890.31 - - 1,263,890.31 IV Distribution of profits 1. Pick-up of surplus reserves - - 25,425,297.57 (25,425,297.57) 2. Distribution to minority owners - - - - V Changes of equity by internal conversion Capital conversion from capital reserve 389,003,808.00 (389,003,808.00) - - Closing balance in 2008 2,334,022,848.00 1,499,260,947.64 1,043,707,045.57 2,720,272,069.26 7,596,524,812.96 The notes on pages 19 to 115 form an integral part of these financial statements. 52 Chongqing Changan Automobile Company Limited CONSOLIDATED STATMENT OF CHANGES IN SHAREHOLDERS’ EQUITY 2007 (Expressed in Renminbi Yuan) 2007 Interests belong to parent company Share capital Capital reserves Surplus reserves Retained earnings Sub Closing balance in 2006 1,620,849,200.00 2,069,083,424.00 1,729,939,091.00 1,886,907,629.00 7,306,779,344.00 Add: Carrying out new Accounting Standards for the first time - (210,805,600.00) (711,657,343.00) 588,197,499.07 (334,265,444.43) Opening balance in 2007 1,620,849,200.00 1,858,277,824.00 1,018,281,748.00 2,475,105,128.07 6,972,513,899.57 Changes during the year I Net profit - - - 666,893,971.66 666,893,971.66 II Gain and loss directly put into equity 1. Net change of the available-for-sale financial assets - - - - 2. Effect of changes of other owners’equities of investees under equity-method - - - - 3. The income tax influence of the item put into equity - - - - 4.Others - 30,911,768.67 - - 30,911,769.17 Subtotal of I and II 30,911,768.67 666,893,971.66 697,805,740.83 III Input by investors and decrease in capital 1. Capital input by investors - - - - 2. Purchase of minority interests of subsidiaries - - - - - (4,329,99 3. Others - - - - IV Distribution of profits 1. Pick-up of surplus reserves - - - - 2. Distribution to investors 324,169,840.00 - - (421,420,792.00) (97,250,95 3. Distribution to minority owners - - - - Closing balance in 2007 1,945,019,040.00 1,889,189,592.67 1,018,281,748.00 2,720,578,307.73 7,573,068,688.40 The notes on pages 19 to 115 form an integral part of these financial statements. 53 Chongqing Changan Automobile Company Limited CONSOLIDATED CASH FLOW STATEMENT 2008 (Expressed in Renminbi Yuan) Notes VI 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from sale of goods or rendering of services 9,118,470,503.03 11,490,690,590.52 Refunds of taxes 154,535,533.88 77,480,913.45 Cash received relating to other operating activities 48 120,770,873.69 127,413,435.58 Sub-total of cash inflows 9,393,776,910.60 11,695,584,939.55 Cash paid for goods and services 6,111,254,376.29 8,408,920,216.13 Cash paid to and on behalf of employees 618,156,157.77 663,094,643.89 Cash paid for all types of taxes 739,752,957.73 798,164,774.96 Cash paid relating to other operating activities 48 1,439,775,711.95 1,337,767,590.59 Sub-total of cash outflows 8,908,939,203.74 11,207,947,225.57 Net cash flows from operating activities 484,837,706.86 487,637,713.98 The notes on pages 19 to 115 form an integral part of these financial statements. 54 Chongqing Changan Automobile Company Limited CONSOLIDATED CASH FLOW STATEMENT (continued) 2008 (Expressed in Renminbi Yuan) Notes VI 2008 2007 CASH FLOWS FROM INVESTING ACTIVITIES: Cash received from sale of investments - 199,153.40 Cash received from return on investments 859,821,133.04 687,743,951.26 Net cash received from disposal of fixed assets, intangible assets and other long-term assets 2,040,179.38 4,483,652.46 Cash received from sale of subsidiaries and other business units 4,591,042.22 62,501,302.00 Cash received relating to other investing activities - 25,495.24 Sub-total of cash inflows 866,452,354.64 754,953,554.36 Cash paid for acquisition of fixed assets, intangible assets and other long-term assets 930,390,002.00 345,240,178.45 Cash paid for acquisition of subsidiaries and other business units 718,590,799.62 45,221,340.00 Cash paid relating to other investing activities - 190,183.00 Sub-total of cash outflows 1,648,980,801.62 390,651,701.45 Net cash flows from investing activities (782,528,446.98) 364,301,852.91 The notes on pages 19 to 115 form an integral part of these financial statements. 55 Chongqing Changan Automobile Company Limited CONSOLIDATED CASH FLOW STATEMENT (continued) 2008 (Expressed in Renminbi Yuan) Notes VI 2008 2007 CASH FLOWS FROM FINANCING ACTIVITIES: Cash received from absorbing Investment under equity method 10,150,000.00 - Cash received from borrowings 2,921,550,666.76 1,084,100,000.00 Cash received relating to other financing activities 48 111,669,829.43 633,509,794.77 Sub-total of cash inflows 3,043,370,496.19 1,717,609,794.57 Cash repayments of borrowings 2,501,851,702.02 2,016,900,000.00 Cash paid for distribution of dividends or profits and for interest expenses 91,880,565.73 157,785,913.61 Including: Subsidiaries paying the dividends to minority 2,606,660.47 5,500,000.00 Cash paid relating to other financing activities 48 85,984,026.10 611,489,827.50 Sub-total of cash outflows 2,679,716,293.85 2,786,175,741.11 Net cash flows from financing activities 363,654,202.34 (1,068,565,946.54) EFFECT OF CHANGES IN EXCHANGE RATE ON CASH - - NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 65,963,462.22 (216,626,379.65) Add: Opening bablance of cash and cash equivalents 1,472,216,670.61 1,688,843,050.26 CLOSING BALANCE OF CASH AND CASH EQUIVLANT 50 1,538,180,132.83 1,472,216,670.61 The notes on pages 19 to 115 form an integral part of these financial statements. 56 Chongqing Changan Automobile Company Limited BALANCE SHEET 31 December 2008 (Expressed in Renminbi Yuan) Notes VI 2008 2007 ASSETS Current assets: Cash 1,166,965,437.50 1,169,325,053.21 Notes receivable 1,257,028,330.15 1,244,832,731.87 Accounts receivable 1 959,777,772.64 1,279,366,970.68 Prepayments 202,933,850.32 320,766,687.31 Other receivables 2 166,274,867.13 217,737,210.27 Inventories 867,644,236.84 942,586,744.00 Total current assets 4,620,624,494.58 5,174,615,397.34 Non-current assets: Long-term equity investments 3 5,459,914,321.90 4,980,022,618.53 Fixed assets 2,805,942,755.49 2,841,453,390.86 Construction in progress 805,436,096.76 220,759,019.46 Project materials 3,147,070.12 6,279,679.78 Intangible assets 34,930,695.07 19,734,666.73 Development expenditure 308,158,911.20 100,710,739.51 Long-term deferred expenses 1,440,640.00 1,620,720.00 Deferred tax assets 97,843,264.45 98,789,178.14 Total non-current assets 9,516,813,754.99 8,269,370,013.01 TOTAL ASSETS 14,137,438,249.57 13,443,985,410.35 The notes on pages 19 to 115 form an integral part of these financial statements. 57 Chongqing Changan Automobile Company Limited BALANCE SHEET (continued) 31 December 2008 (Expressed in Renminbi Yuan) Notes VI 2008 2007 LIABILITIES AND OWNERS’ EQUITY Current liabilities: Short-term loans 875,241,709.80 - Short-term Bonds payable - 513,680,000.00 Notes payable 2,117,879,136.98 1,271,450,000.00 Accounts payable 1,327,279,900.55 1,982,380,836.96 Advances receipts 383,616,593.07 527,982,336.10 Employee compensation payable 85,737,760.45 82,331,521.17 Taxes payable 138,292,988.92 139,094,766.63 Other payables 1,200,000.00 Other payables 259,745,444.43 229,086,101.28 Contingent liabilities 156,363,110.75 175,127,622.75 Other current liabilities 224,241,972.26 207,502,072.76 Total current liabilities 5,569,598,617.21 5,128,635,257.65 Non-current liabilities: Deferred income 37,939,992.97 31,232,786.52 Other non-current liabilities 26,727,000.00 25,628,000.00 Total non-current liabilities 64,666,992.97 56,860,786.52 Total liabilities 5,634,265,610.18 5,185,496,044.17 Owners’ equity: Share capital 2,334,022,848.00 1,945,019,040.00 Capital reserves 1,675,528,688.83 2,066,721,224.17 Surplus reserves 1,042,968,948.06 1,018,281,748.00 Retained earnings 3,450,652,154.50 3,228,467,354.01 Total owners’ equity 8,503,172,639.39 8,258,489,366.18 TOTAL LIABILITIES AND OWNERS’ EQUITY 14,137,438,249.57 13,443,985,410.35 The notes on pages 19 to 115 form an integral part of these financial statements. 58 Chongqing Changan Automobile Company Limited INCOME STATEMENT 2008 (Expressed in Renminbi Yuan) Notes VI 2008 2007 Operating revenue 4 8,620,934,213.43 9,075,021,521.62 Less: Operating cost 4 7,275,080,143.09 7,658,457,189.86 Business tax and surcharges 222,168,227.34 246,413,811.84 Operating expenses 672,575,182.15 703,462,762.37 General and administrative expenses 712,365,879.80 529,508,918.03 Financial expenses (13,432,645.86) (5,911,569.52) Impairment loss on assets 32,576,960.64 46,404,219.67 Add: Investment income 534,614,183.23 914,029,531.80 Including：from subsidiaries (9,502,219.94) 8,756,820.86 from associates of the Group 3,742,123.88 1,196,543.45 from joint venture 540,374,279.29 902,737,455.08 Operating profit 254,214,649.50 810,715,721.17 Add: Non-operating income 51,682,277.67 20,421,047.19 Less: Non-operating expenses 60,467,740.47 19,798,332.49 Including： loss on disposal of non-current assets 40,221,770.29 16,168,557.95 Total profit 245,429,186.70 811,338,435.87 Less: Income tax expense (1,442,813.85) 12,214,929.86 Net profit 246,872,000.55 799,123,506.01 The notes on pages 19 to 115 form an integral part of these financial statements. 59 Chongqing Changan Automobile Company Limited STATMENT OF CHANGES IN SHAREHOLDERS’ EQUITY 2008 (Expressed in Renminbi Yuan) 2008 Share Capital Surplus Retained Total capital reserves reserves earnings owners’ equity Closing balance in 2007 1,945,019,040.00 2,066,721,224.17 1,018,281,748.00 3,228,467,354.01 8,258,489,366.18 Changes during the year I Net profit - - - 246,872,000.55 246,872,000.55 II Gain and loss directly put into equity 1. Effect of changes in other onwers’ equities of investees under equity-method - 200,000.20 - - 200,000.20 2. Others - (2,388,727.54) - - (2,388,727.54) Subtotal of I and II - (2,188,727.34) - 246,872,000.55 244,683,273.21 III Distribution of profits Pick-up of surplus reserves - - 25,425,297.57 (25,425,297.57) - IV Changes of equity by internal conversion decrease of capital Capital conversion from capital reserve 389,003,808.00 (389,003,808.00) - - - Closing balance in 2008 2,334,022,848.00 1,675,528,688.83 1,043,707,045.57 3,450,652,154.50 8,503,172,639.39 The notes on pages 19 to 115 form an integral part of these financial statements. 60 Chongqing Changan Automobile Company Limited STATMENT OF CHANGES IN SHAREHOLDERS’ EQUITY 2007 (Expressed in Renminbi Yuan) 2007 Share Capital Surplus Retained Total capital reserves reserves earnings owners’ equity Closing balance in 2006 1,620,849,200.00 2,069,083,424.00 1,003,291,545.00 2,743,304,083.00 7,436,528,252.00 Add: Carrying out new Accounting Standard s for the first time - (33,273,969.00) 14,990,203.00 107,460,557.00 89,176,791.00 Opening balance in 2007 1,620,849,200.00 2,035,809,455.00 1,018,281,748.00 2,850,764,640.00 7,525,705,043.00 Changes during the year I Net profit - - - 799,123,506.01 799,123,506.01 II Gain and loss directly put into equity 1. Net change of the available -for-sale financial assets - - - - - 2. Effect of changes in other onwers’ equities of investees under equity-method - - - - - 3. The income tax influence of the item put into equity - - - - - 4. Others - 30,911,769.17 - - 30,911,769.17 Subtotal of I and II - 30,911,769.17 - 799,123,506.01 830,035,275.18 III Input of investors and decrease of capital 1. Capital input by investors - - - - - 2. Others - - - - - IV Distribution of profits 1. Pick-up of surplus reserves - - - - - 2. Distribution to investors 324,169,840.00 - - (421,420,792.00) (97,250,952.00) Closing balance in 2007 1,945,019,040.00 2,066,721,224.17 1,018,281,748.00 3,228,467,354.01 8,258,489,366.18 The notes on pages 19 to 115 form an integral part of these financial statements. 61 Chongqing Changan Automobile Company Limited CASH FLOW STATEMENT 2008 (Expressed in Renminbi Yuan) Notes VI 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from sale of goods or rendering of services 6,960,115,313.90 8,531,769,942.50 Refunds of taxes 28,258,900.00 5,302,000.00 Cash received relating to other operating activities 6 81,362,137.48 116,910,366.90 Sub-total of cash inflows 7,069,736,351.38 8,653,982,309.40 Cash paid for goods and services 4,505,994,040.93 5,714,798,535.83 Cash paid to and on behalf of employees 495,297,035.42 550,223,845.68 Cash paid for all types of taxes 481,834,631.70 609,997,617.83 Cash paid relating to other operating activities 6 1,121,935,292.61 1,238,969,378.74 Sub-total of cash outflows 6,605,061,000.66 8,113,989,378.08 Net cash flows from operating activities 464,675,350.72 539,992,931.32 The notes on pages 19 to 115 form an integral part of these financial statements. 62 Chongqing Changan Automobile Company Limited CASH FLOW STATEMENT (continued) 2008 (Expressed in Renminbi Yuan) Notes VI 2008 2007 CASH FLOWS FROM INVESTING ACTIVITIES: Cash received from sale of investments 5,068,402.91 62,700,455.40 Cash received from return on investments 866,988,273.62 692,756,819.92 Net cash received from disposal of fixed assets, intangible assets and other long-term assets 1,776,311.00 1,319,738.29 Cash received relating to other investing activities - - Sub-total of cash inflows 873,832,987.53 756,777,013.61 Cash paid for acquisition of fixed assets, intangible assets and other long-term assets 860,923,061.64 276,933,924.35 Cash paid for acquisition of subsidiaries and other business units 774,922,599.62 60,221,340.00 Cash paid relating to other investing activities - 190,183.00 Sub-total of cash outflows 1,635,845,661.26 337,345,447.35 Net cash flows from investing activities (762,012,673.73) 419,431,566.26 The notes on pages 19 to 115 form an integral part of these financial statements. 63 Chongqing Changan Automobile Company Limited CASH FLOW STATEMENT (continued) 2008 (Expressed in Renminbi Yuan) Notes VI 2008 2007 CASH FLOWS FROM FINANCING ACTIVITIES: Cash received from borrowings 2,245,241,709.80 550,000,000.00 Cash received relating to other financing activities 6 - 595,000,000.00 Sub-total of cash inflows 2,245,241,709.80 1,145,000,000.00 Cash repayments of borrowings 1,870,000,000.00 1,500,000,000.00 Cash paid for distribution of dividends or profits and for interest expenses 80,264,002.50 143,138,256.37 Cash paid relating to other financing activities 6 5,162,261.10 500,000,000.00 Sub-total of cash outflows 1,955,426,263.60 2,143,138,256.37 Net cash flows from financing activities 289,815,446.20 (998,138,256.37) EFFECT OF CHANGES IN EXCHANGE RATE ON CASH - - NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (7,521,876.81) (38,713,758.79) Add: Opening bablance of cash and cash equivalents 1,169,325,053.21 1,208,038,812.00 CLOSING BALANCE OF CASH AND CASH EQUIVLANT 8 1,161,803,176.40 1,169,325,053.21 The notes on pages 19 to 115 form an integral part of these financial statements. 64 Chongqing Changan Automobile Company Limited Notes to Financial Statement 2008 (Expressed in Renminbi Yuan) I. Corporate information Chongqing Changan Automobile Co., Ltd. (hereafter referred to as the “Company”) was established in the People’s Republic of China (hereafter referred to as the “PRC”) under the Company Law of the PRC on 31 October 1996. The Legal Representative’s Operating License issued by Chongqing Industrial and Commercial Administrative Bureau is Yu-Jing No. 28546236-3. The Company has its primary listing on the Shenzhen Stock Exchange (for both “A” and “B” shares). The Company and its subsidiaries and jointly controlled entities (hereafter collectively referred to as the “Group”) are principally engaged in the manufacturing and selling of automobiles and components. The address of the Company’s registered office is No. 260 Jianxin East Road, Jiangbei District, Chongqing, the PRC. II. Representation regarding the preparation basis and compliance with the Accounting Standards for Business Enterprises The financial statements have been prepared, in accordance with the “Accounting Standards for Business Enterprises - Basic Standards” and 38 specific standards promulgated by the MOF in 2006, subsequent implementation guidance and other relevant provisions (together known as “Accounting Standards for Business Enterprises” ). The financial statements are presented on a going concern basis. Declaration on compliance with the Accounting Standards for Business Enterprises The financial statements of the Company have been prepared in accordance with the Accounting Standards for Business Enterprises, and present fairly and completely, the financial position of the Company and the Group as of 31 December 2008 and the results of the operations and the cash flows for the year then ended. 65 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates The financial statements of the Company and its subsidiaries (collectively “the Group”) for the year ended 31 December 2008, are prepared based on the following significant accounting policies and estimates set out by the Accounting Standards for Business Enterprises. 1. Accounting year The accounting year of the Group is from 1 January to 31 December of each calendar year. 2. Functional currency The Group’s functional and reporting currency is the Renminbi (“RMB”). Unless otherwise stated, the unit of the currency is Yuan. 3. Basis of accounting and measurement basis The Group maintains its accounting records on an accrual basis. Except for certain financial instruments, assets are recorded at actual cost when they are acquired. If the assets are impaired, the corresponding provisions should be made accordingly. When invested during the restructuring of the Company, the assets should be recorded at the appraisal price determined by the National Assets Management Department. 4. Business combinations A business combination is a transaction or event that brings together two or more separate entities into one reporting entity. Business combinations are classified into business combinations involving entities under common control and business combinations involving entities not under common control. Business combination involving entities under common control A business combination involving entities under common control is a business combination in which all of the combining entities are ultimately controlled by the same party or parties both before and after the combination, and that control is not transitory. For a business combination involving entitites under common control, the party that, on the combination date, obtains control of another entity participating in the combination is the acquiring party, while that other entity participating in the combination is a party being acquired. Combination date is the date on which the acquiring party effectively obtains control of the party being acquired. 66 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 4. Business combinations (continued) Business combination involving entities under common control (continued) Assets and liabilities that are obtained by the acquiring party in a business combination shall be measured at their carrying amounts at the combination date as recorded by the party being acquired. The difference between the carrying amount of the net assets obtained and the carrying amount of the consideration paid for the combination (or the aggregate face value of shareds issued as consideration) shall be adjusted to capital reserve. If the capital reserve is not sufficient to absorb the difference, any excess shall be adjusted against retained earnings. The cost of a combination incurred by the acquiring party includes any costs directly attributable to the combination, which shall be expensed when incurred. Business combination involving entities not under common control A business combination involving entities not under common control is a business combination in which all of the combining entities are not ultimately controlled by the same party or parties both before and after the combination. For a business combination involving entitites not under common control, the party that, on the acquisition date, obtains control of another entity participating in the combination is the acquirer, while that other entity participating in the combination is the acquiree. Acquisition date is the date on which the acquirer effectively obtains control of the acquiree. For a business combination that involves one single exchange transaction, the cost of combination is the aggregate of the fair values, at the acquisition date, of the assets given, liabilities incurred or assumed, and equity securities issued by the acquirer, in exchange for control of the acquiree. For a business combination achieved in stages that involves multiple exchange transactions, the cost of combination is the aggregate of the costs of individual transactions. When a business combination contract provides for an adjustment to the cost of combination contingent on a future event, the acquirer shall include the amount of that adjustment in the cost of the combination if it is expected on the acquisition date that the occurrence of the future event is probable and the amount affecting the cost of combination can be measured reliably. 67 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 4. Business combinations (continued) Business combination involving entities not under common control (continued) The acquirer shall measure the acquiree’s identifiable assets, liabilities and contingent liabilities acquired in the business combination at their fair values on the acquisition date. Where the cost of a business combination exceeds the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference shall be recognized as goodwill. Where the cost of combination is less than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference shall be accounted for according to the following requirements: (i) the acquirer shall reassess the measurement of the fair values of the acquiree’s identifiable assets, liabilities and contingent liabilities and measurement of the cost of combination; (ii) if after that reassessment, the cost of combination is still less than the acquirer’s interest in the fair values of the acquiree’s identifiable net assets, the acquirer shall recognize the remaining difference immediately in the income statement for the current period. 5. Consolidated financial statements The scope of consolidation of consolidated financial statements is determined based on control, and includes the financial statements of the Company and its subsidiaries for the year ended 31 December 2008. A subsidiary is an enterprise or entity that is controlled by the Group. Consolidated financial statements are prepared using uniform reporting dates and accounting policies. All significant intercompany transactions and balances within the Group are eliminated on consolidation. For any subsidiary consolidated by the Group, the portion of the profit or loss and net assets of such a subsidiary attributable to equity interests that are not owned, directly or indirectly by the Group is separately presented as minority interest in the consolidated financial statements. 68 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 5. Consolidated financial statements (continued) With respect to subsidiaries acquired through business combinations involving entities not under common control, the operating results and cash flows of the acquiree should be included in the consolidated financial statements, from the day that the Group gains control, till the Group ceases the control of it. While preparing the consolidated financial statements, the acquirer should adjust the subsidiary’s financial statements, on the basis of the fair values of the identifiable assets, liabilities and contingent liabilities recognized on the acquisition date. With respect to subsidiaries acquired through business combinations involving entities under common control, the operating results and cash flows of the acquiree should be included in the consolidated financial statements from the beginning of the period in which the combination occurs. 6. Cash equivalents Cash equivalents represent short-term, highly liquid investments which are readily convertible into known amounts of cash, and which are subject to an insignificant risk of changes in value. 7. Foreign currency translation The amount of foreign currency transactions occurred in the reporting year is translated into functional currency. The foreign currency transactions are recorded, on initial recognition in the functional currency, by applying to the foreign currency amount at the spot exchange rate as at the transaction dates. Foreign currency monetary items are translated using the spot exchange rate quoted by the People’s Bank of China at the balance sheet date. The exchange gains or losses arising from occurrence of transactions and exchange of currencies, except for those relating to foreign currency borrowings specifically for construction and acquisition of fixed assets capitalized, are dealt with in the profit and loss accounts. Non-monetary foreign currency items measured at historical cost remain to be translated at the spot exchange rate prevailing on the transaction date, and the amount denominated in the functional currency should not be changed. Non-monetary foreign currency items measured at fair value should be translated at the spot exchange rate prevailing on the date when the fair values are determined. The exchange difference thus resulted should be charged to the current income or capital surplus account of the current period. 69 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 7. Foreign currency translation (continued) When preparing consolidated financial statements, the financial statements of the subsidiaries presented in foreign currencies are translated into Renminbi as follows: asset and liability accounts are translated into Renminbi at exchange rates ruling at the balance sheet date; shareholders’ equity accounts other than retained profits are translated into Renminbi at the applicable exchange rates ruling at the transaction dates; items in income statement other than profit appropriation statement are translated into Renminbi at spot exchange rates on transaction occurrence; total difference between translated assets and translated liabilities and shareholders’ equity is separately listed as “foreign currency exchange differences” below retained profits. The translation difference arising from the settlement of oversea subsidiaries is charged to the current liquidation profit and loss in proportion to the settlement ratio of the assets concerned. Foreign currency cash flows and the cash flows of foreign subsidiaries should be translated using the average exchange rate prevailing on the transaction month during which the cash flows occur. The amount of the effect on the cash arising from the change in the exchange rate should be separately presented as an adjustment item in the cash flow statement. 8. Inventory Inventory includes raw materials, goods in transit, work in progress, finished goods, consigned processing materials, and low-value consumables. Inventories are assets (a) held for sales in the ordinary course of business (b) in the process of production for such sale (c) in the form of materials or supplies to be consumed in the production process or in the rendering of services. Inventory is initially carried at the actual cost. Inventory costs comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventory to its present location and condition. Weighted average method is assigned to the determination of actual costs of inventories. The Group applies a perpetual inventory system. One-off writing off method is adopted in amortization of packaging materials and low-value consumables. 70 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 8. Inventory (continued) At the balance sheet date, the inventory is stated at the lower of cost and net realizable value. If the cost is higher than the net realizable value, provision for the inventory should be made through profit or loss. If factors that resulted in the provision for the inventory have disappeared and made the net realizable value higher than their book value, the amount of the write-down should be reversed, to the extent of the amount of the provision for the inventory, and the reversed amount should be recognized in the income statement for the current period. Net realizable 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. The impairment provision should be made on a basis of each item of finished goods according to the difference between cost and net realizeable value. For large numbers of inventories at relatively low unit prices, the provision for loss on decline in value of inventories should be made by category. 9. Long-term equity investments Long-term equity investments include investments in subsidiaries, joint ventures and associates. The long-term investments are initially recorded at cost on acquisition. It is accounted for using either the cost method or the equity method as appropriate under the following circumstances. Cost method is applied to account for long-term equity investments, when the Group has control of the investee enterprise, or does not have jointly control or significant influence on the investee enterprise, the fair value of which cannot be reliably measured due to the fact they are not quoted in an active market. Under cost method, the long-term equity investment is valued at the cost of the initial investment. Profit or cash dividends declared by the invested enterprise are recognized as investment income for the current period. The amount of investment income recognized is limited to the amount distributed out of accumulated net profit of the invested enterprise that arises after the investment is made. The amount of profit or cash dividends declared by the invested enterprise in excess of the above threshold is treated as return on investment cost, and netted against the carrying amount of investments. 71 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 9. Long-term equity investments (continued) The equity method is applied to account for long-term equity investments, when the Group has jointly control, or significant influence on the investee companies. Under equity method, when the initial investment cost of a long-term equity investment exceeds the investing enterprise’s interest in the fair values of the investee’s identifiable net assets at the acquisition date, the difference between them is accounted for as an initial cost. As to the initial investment cost is less than the investing enterprise’s interest in the fair values of the investee’s identifiable net assets at the acquisition date, the difference shall be charged to the income statement for the current period, and the cost of the long-term equity investment shall be adjusted accordingly. Under equity method, the Group recognizes its share of post-acquisition equity in the investee enterprise for the current period as a gain or loss on investment, and also increases or decreases the carrying amount of the investment. When recognizing its share in the net profit or loss of the investee entities, the Group should, based on the fair values of the identifiable assets of the investee entity when the investment is acquired, in accordance with the Group’s accounting policies and periods, after eliminating the portion of the profits or losses, arising from internal transactions with joint ventures and associates, attributable to the investing entity according to the share ratio (but losses arising from internal transactions that belong to losses on the impairment of assets, should be recognized in full), recognize the net profit of the investee entity after making appropriate adjustments. The book value of the investment is reduced to the extent that the Group’s share of the profit or cash dividend declared to be distributed by the investee enterprise. However, the share of net loss is only recognized to the extent that the book value of the investment is reduced to zero, except to the extent that the Group has incurred obligations to assume additional losses. The Group shall adjust the carrying amount of the long-term equity investment for other changes in owners’ equity of the investee enterprise (other than net profits or losses), and include the corresponding adjustments in equity, which should be realized thourgh profit or loss in subsequent settlement of the respective long-term investment. 72 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 9. Long-term equity investments (continued) On settlement of a long-term equity investment, the difference between the proceeds actually received and the carrying amount shall be recognized in the income statement for the current period. 10. Investment real estates Investment real estates are the real estates held for generating rent and/or capital appreciation, including rented right to the use of land, the right to the use of land which is held and prepared for transfer after appreciation, and the right to the use of rented building. The initial measurement of the investment real estate shall be made at its actual cost. The follow-up expenses pertinent to an investment real estate shall be included in the cost of the investment real estate, if the economic benefits pertinent to this real estate are likely to flow into the enterprise, and, the cost of the investment real estate can be reliably measured. Otherwise, they should be included in the current profits and losses upon occurrence. The group adopts the cost pattern to make follow-up measurement to the investment real estate. The buildings are depreciated under straight-line method. The rights to the use of land are amortized under straight-line methond within its useful life. 11. Fixed assets Fixed assets are tangible assets held by: (a) for use in production or supply of goods or services, for rental to others or for administrative purposes; (b) have useful life of more than one year. A fixed asset shall be recognized only when the economic benefits associated with the asset will flow to the Group and the cost of the asset can be measured reliably. Subsequent expenditure incurred for a fixed asset that meet the recognition criterial shall be included in the cost of the fixed asset, and the book value of the component of the fixed asset that is replaced shall be derecognized. Otherwise, such expenditure shall be recognized in the income statement in the period in which they are incurred. 73 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 11. Fixed assets (continued) Fixed assets are initially measured at actual cost on acquisition. The cost of a purchased fixed asset comprises the purchase price, relevant taxes and any directly attributable expenditure for bringing the asset to working condition for its intended use, such as delivery and handling costs, installation costs and other surcharges. Fixed assets are depreciated on straight-line basis. The estimated useful lives, estimated residual values and annual depreciation rates for each category of fixed assets are as follows: Estimated Estimated Annual useful life residual rate depreciation rate Buildings 20~40 years 3% 2.43%~4.85% Machinery 10~20 years 3% 4.85%~9.7% Vehicles 5~8 years 3% 12.13%~19.4% Others 5 years 3% 19.4% Note: the mould tools in machinery should be depreciated in proportionate to the estimated production. Where the individual component parts of an item of fixed asset have different useful lives or provide benefits to the enterprise in different patterns, different depreciation rates and methods should be applied. The Group reviews the useful life and estimated net residual value of a fixed asset and the depreciation method applied at least at the end of each year and makes adjustments if necessary. 12. Construction in progress The cost of construction in progress is determined according to the actual expenditure for the construction, including all necessary construction expenditure incurred during the construction period, borrowing costs that should be capitalized before the construction reaches the condition for intended use and other relevant expenses. Construction in progress is transferred to fixed assets when the asset is ready for its intended use. 74 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 13. Intangible assets Intangible assets of the Group are recorded at actual cost on acquisition. The useful life of the intangible assets shall be assessed according to the estimated beneficial period expected to generate economic benefits. An intangible asset shall be regarded as having an indefinite useful life when there is no foreseeable limit to the period over which the asset is expected to generate economic benefits for the Group. The useful lives of the intangible assets are as follow: Useful life Land use right 25~61 years Software 2 years Trademark 15 years Non-patent technology 5 years Land use rights that are purchased or acquired through the payment of land use fees are accounted for as intangible assets. With respect to Self-developed properties, the corresponding land use right and buildings should be recorded as intangible and fixed assets separately. As to the purchased properties, if encountered the reasonable allocation of outlays between land and buildings, all assets purchased will be recorded as fixed assets. The cost of a finite useful life intangible asset is amortized using the straight-line method during the estimated useful life. For an intangible asset with a finite useful life, the Group reviews the estimated useful life and amortization method at least at the end of each year and adjusts if necessary. 14. Research and development exenditures The Group classified the internal research and development expenditures as follows: research expenditures and development cost. The expenditures in research stage are charged to the current income on occurrence. 75 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 14. Research and development exenditures (continued) The expenditures in development stage are capitalized that meet all the conditions of (a) it is feasible technically to finish intangible assets for use or sale; (b) it is intended to finish and use or sell the intangible assets; (c) the usefulness of methods for intangible assets to generate economic benefits shall be proved, including being able to prove that there is a potential market for the products manufactured by applying the intangible assets or there is a potential market for the intangible assets itself or the intangible assets will be used internally; (d) it is able to finish the development of the intangible assets, and able to use or sell the intangible assets, with the support of sufficient technologies, financial resources and other resources; and The development expenditures of the intangible assets can be reliably measured. Expenses incurred that don’t meet the above requirements unanimously should be expensed in the income statement of the reporting period. The Company discriminates between research and development stage with the condition that the project research comes into project-determination stage ,in which the relevant research complete all the fractionization of products measurements and final product scheme under final approval of management. The expenditures incurred in and before project-determination stage is charged to the current income, otherwise it is recorded as development cost. 15. Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Recognition and derecognition The Group recognizes a financial asset or a financial liability on its balance sheet, when the Group becomes a party to the contractural provision of the instrument. The Group derecognizes a financial asset when: 1) The contractual rights to the cash flows from the financial asset expire; or 2) It transfers the financial asset and the transfer qualifies for derecognition as set out below. 76 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 15. Financial instruments (continued) Recognition and derecognition (continued) If the obligation relating to a financial liability has been discharged or cancelled or has expired, the financial liability is derecognized. If the existing financial liaibility is replaced by the same creditor, with another financial liability that has terms with an almost completely different nature, or if almost all the terms of the existing liability are substantially revised, such replacement or revision is accounted for as the derecognition of the original liability and the recognition of a new liability, and the difference thus resulted is recognized in the income statement of the current period. Classification and measurement of financial assets Financial assets are, on initial recognition, classified into the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. When financial assets are recognized initially, they are measured at fair value. In the case of financial assets at fair value through profit or loss, relevant transaction costs are directly charged to the profit and loss of the current period; transaction costs relating to financial assets of other categories are included in the amount initially recognized. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. A financial asset held for trading is the financial asset that meets one of the following conditions: 1) the financial asset is acquired for the purpose of selling in a short term; 2) the financial asset is a part of a portfolio of identifiable financial instruments that are collectively managed, and there is objective evidence indicating that the enterprise recently manages this portfolio for the purpose of short-term profits; 3) the financial asset is a derivative financial instrument. For such kind of financial assets, fair values are adopted for subsequent measurement. All the realized or unrealized gains or losses on these financial assets are recognized in the income statement of the current period. 77 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 15. Financial instruments (continued) Classification and measurement of financial assets (continued) Financial assets at fair value through profit or loss (continued) Financial assets may be designated upon initial recognition as at fair value through profit or loss if one of the following criteria is met: 1) The designation eliminates or significantly reduces the inconsistency in the measurement or recognition of relevant gains or losses that would otherwise arise from measuring the financial instruments on a different basis. 2) A group of financial instruments is managed and its performance is evaluated on a fair value basis, in accordance wih a documented risk management or investment strategy, and information about the group is provided internally on that basis to the key management personnel. 3) The financial asset involves a hybrid instrument that contains one or more embedded derivatives, except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited. 4) The financial asset contains an embedded derivative that would need to be separately recorded and cannot be separately measured when acquired or at the subsequent balance sheet date. Investments in equity instruments, which have no quoted market price in active markets and whose fair values cannot be reliably measured, should not be designated as financial assets at fair value through profit or loss. If the financial assets are, on initial recognition, classified into financial assets at fair value through profit or loss, it couldn’t be reclassified into other categories; and other categories couldn’t be classified into financial assets at fair value through profit or loss. There are no financial assets at fair value through profit or loss in the reporting period of the Group. 78 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 15. Financial instruments (continued) Classification and measurement of financial assets (continued) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determineable payments and fixed maturity that an entity has the positive intention and ability to hold to maturity. Held-to-maturity investments shall be measured at amortized cost using the effective interest method. Gains or losses arising from derecognition, impairment or amortization are recognized in current profit or loss. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables shall be measured at amortized cost using the effective interest method. Gains or losses arising from derecognition, impairment or amortization are recognized in the income statement. Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss. After initial recognition, available-for-sale financial assets are measured at fair value. The premium/ discount is amortized using effective interest method and recognized as interest income or expense. A gain or loss arising from a change in the fair value of an available-for-sale financial asse is recognized in a separate component of capital reserve, except for impairment losses and foreign exchange gains and losses resulted from monetary financial assets, until the financial asset is derecognized or determined to be impaired, at which time the cumulative gain or loss previously recognized in capital reserve shall be removed from capital reserve and recognized in the income statement. Interests and dividends relating to an available-for-sale financial asset are recognized in the income statement for the period they relate to. The financial liabilities are, upon initial recognition, classified as financial liabilities at fair value through profit or loss and other financial liabilities. For financial liabilities at fair value through profit or loss, relevant transaction costs are directly recognized in the income statement of the current period, and transaction costs relating to other financial liabilities are included in the initially recognized amount. 79 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 15. Financial instruments (continued) Classification and measurement of financial liabilities Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and those designated as at fair value through profit or loss. A financial liability held for trading is the financial liability that meets one of the following conditions: 1) the financial liability is assumed for the purpose of repurchasing in a short term; 2) the financial liability is a part of a portfolio of identifiable financial instruments that are collectively managed, and there is objective evidence indicating that the enterprise recently manages this portfolio for the purpose of short-term profits; 3) the financial liability is a derivative financial instrument. For such kind of financial liabilities, fair values are adopted for subsequent measurement. All the realized or unrealized gains or losses on these financial liabilities are recognized in the income statement of the current period. Financial liabilities may be designated upon initial recognition as at fair value through profit or loss only when one of the following criteria is met: 1) The designation eliminates or significantly reduces the inconsistency in the measurement or recognition of relevant gains or losses that would otherwise arise from measuring the financial instruments on a different basis. 2) A group of financial instruments is managed and its performance is evaluated on a fair value basis, in accordance wih a documented risk management or investment strategy, and information about the group is provided internally on that basis to the key management personnel. 3) The financial liability involves a hybrid instrument that contains one or more embedded derivatives, except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited. The financial liability contains an embedded derivative that would need to be separately recorded and cannot be separately measured when acquired or at the subsequent balance sheet date. 80 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 15. Financial instruments (continued) Classification and measurement of financial liabilities (continued) Financial liabilities at fair value through profit or loss (continued) If an enterprise has classified a financial liability as financial liability at fair value through profit or loss, the financial liability cannot be reclassified into other financial liabilities; other financial liabilities cannot be reclassified into financial liability at fair value through profit or loss, either. The Group holds no financial liabilities at fair value through profit or loss at its initial recognition in the reporting period. Other financial liabilities After initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. Derivative financial instruments Derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are directly recognized in the income statement. Fair value of financial instruments If there is an active market for a financial asset or financial liability, the Group determines the fair value bu using the quoted prices. If no active market exits for a financial instrument, the Group establishes fair value by using a valuation technique. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. 81 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) Impairment of financial assets The Group assesses the carrying amount of a financial asset, at the balance sheet date. If there is objective evidence that the financial asset is impaired, the Group makes provision for the impairment loss. Objective evidence that a financial asset is impaired is evidence arising from one or more events that occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset which can be reliably estimated. Financial assets carried at amortized cost If objective evidence shows that the financial assets carried at amortized cost are impaired, the carrying amount of the financial asset shall be reduced to the present value of the estimated future cash flow (excluding future credit losses that have not been incurred). The amount of reduction is recognized as an impairment loss in the income statement. Present value of estimated future cash flow is discounted at the financial asset’s original effective interest rate and includes the value of any related collateral. If a financial asset is individually significant, the Group assesses the asset individually for impairment, and recognizes the amount of impairment in the income statement if there is objective evidence of impairment. For a financial asset that is not individually significant, the Group can include the asset in a group of financial assets with similar credit risk characteristics and collectively assess them for impairment [or assess the asset individually for impairment]. For financial assets that are not impaired upon individual tests (including financial assets that are individually significant or insignificant), impairment tests should be conducted on them again by including them in the group of financial assets. Assets for which an impairment loss is individually recognized will not be included in a collective assessment of impairment. If, subsequent to the recognition of an impairment loss on a financial asset carried at amortized cost, there is objective evidence of a recovery in value of the financial asset which can be related ovjectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed and recongised in the income statement. However, the reversal shall not result in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed. 82 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 15. Financial instruments (continued) Impairment of financial assets (continued) Financial assets carried at cost If objective evidence shows that the financial assets carried at cost are impaired, the difference between the present value discounted at the prevailing rate of return of similar financial assets and the book value of the financial asset are provided as a provision. The impairment loss recognized cannot be reversed. For long-term equity investments, which are accounted for according to the cost method set out by Accounting Standards for Business Enterprises No. 2 – Long-term Equity Investments and has no quoted market price in active markets, and whose fair values cannot be reliably measured, their impairment should also be treated in accordance with the above principle. Available-for-sale financial assets When there is objective evidence that the asset is impaired, the cumulative loss from declines in fair value that had been recognized directly in capital reserve are removed from equity and recognized in the income statement. The amount of the cumulateive loss that is removed from capital reserves and recognized in the income statement (net of any principal repayment and amortization) and current fair value, less any impairment loss on that financial asset previously recognized in the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be related objectively to an event occurring after the impairment was recognized in the income statement, the previously recognized imapairment loss shall be reversed with the amount of the reversal recognized in the income statement. Impairment losses recognized in the income statement for a debt instrument investment shall not be reversed through proit or loss. 83 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 15. Financial instruments (continued) Transfer of financial assets Transfer of a financial asset is a transaction whereby the Group assigns or conveys a financial asset to another party (the transferee). If the Group transfers substantially all the risks and rewards of ownership of the financial asset, the Group derecognizes the financial asset; and if the Group retains substantially all the risks and rewards of the financial asset, the Group does not derecognize the financial asset. If the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, the Group determines whether it has retained control of the financial asset. In this case: (i) it the Group has not retained control, it derecognizes the financial asset and recognize separately as assets or liabilities any rights and obligations created not retained in the transfer; (ii) if the Group has retained control, it continues to recognize the financial asset to the extent of its continuing involvement in the transferred financial asset and recognizes an associated liability. 16. Borrowing costs Borrowing costs are interest and other costs incurred by the Group in connection with the borrowing of the funds. Borrowing costs include interest, amortization of discounts or premiums related to borrowings, ancillary costs incurred in connection with the arrangement of borrowings, and exchange differences arising from foreign currency borrowings. The borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized. A qualifying asset is an asset (an item of property, plant and equipment and inventory etc.) that necessarily takes a substantial period of time to get ready for its intended use of sale. The capitalization of borrowing costs are as part of the cost of a qualifying asset shall commence when: (a) expenditure for the asset is being incurred; (b) borrowing costs are being incurred; and (c) activities that are necessary to prepare the asset for its intended use or sale are in progress. 84 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 16. Borrowing costs (continued) Capitalization of borrowing costs shall cease when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale. And subsequent borrowing costs are recognized in the income statement. During the capitalization period, the amount of interest to be capitalized for each accounting period shall be determined as follows: (a) where funds are borrowed for a specific-purpose, the amount of interest to be capitalized is the actual interest expense incurred on that borrowing for the period less any bank interest earned form depositing the borrowed funds before being used on the asset or any investment income on the temporary investment of those funds; (b) where funds are borrowed for a general-purpose, the amount of interest to be capitalized on such borrowings is determined by applying a weighted average interest rate to the weighted average of the excess amounts of cumulative expenditure on the asset over and above the amounts of specific-purpose borrowings. During the construction or manufacture of assets that are qualified for capitalization, if abnormal discontinuance, other than procedures necessary for their reaching the expected useful conditions, happens, and the duration of the discontinuance is over three months, the capitalization of the borrowing costs is suspended. Borrowing costs incurred during the discontinuance are recognized as expense and charged to the income statement of the current period, till the construction or manufacture of the assets resumes. 17. Impairment of assets The Group determines the impairment of assets, other than the impairment of inventory, deferred income taxes, financeial assets, and long-term equity investment which is measured by employing the cost method, for which there is no offer in the active market and of which the fair value cannot be reliably measured, using the following methods: 85 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 17. Impairment of assets (continued) The Group assesses at the balance sheet date whether there is any indication that an asset may be impaired. If any indication exists that an asset may be impaired, the Group estimates the recoverable amount of the asset and performs impairment tests. Goodwill arising from a businesss combination and an intangible asset with an indefinite usefull life are tested for impairment at least at the end of every year, irrespective of whether there is any indication that the asset may be impaird. The recoverable amount of an asset is the higher of its fair value less costs to sell and the present value of the future cash flow expected to be derived from the asset. The Group estimates the recoverable amount on an individual basis. If it is not possible to estimate the recoverable amount of the individual asset, the Group determines the recoverable amount of the asset group to which the asset belongs. Identification of an asset group is based on whether major cash flows generated by the asset group are largely independent of the cah flows from other assets or asset groups. When the recoverable amount of an asset or asset group is less than its carrying amount, the carrying amount is reduced to the recoverable amount. The impairment of asset is provided for and the impairment loss is reconised in the income statement for the current period. For the purpose of impairment testing, the carrying amount of goodwill acquired in a business combination is allocated, on a reasonable basis, to related asset groups; if it is impossible to allocate to the related asset groups, it is allocated to each of the related sets of asset groups. Each of the related asset groups or related sets of asset groups is an group or set of asset group that is able to benefit from the synergies of the business combination and shall not be larger than a reportable segment determined by the Group. 86 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 17. Impairment of assets (continued) When an impairment test is conducted on an asset group or a set of asset groups that contains goodwill, if there is any indication of impairment, the Group firstly tests the asset group or the set of asset groups excluding the amount of goodwill allocated for impairment, i.e., it determines and compares the recoverable amount with the related carrying amount and then recognize impairment loss if any. Whereafter, the Group tests the asset group or set of asset groups including goodwill for impairment, the carrying amount (including the portion of the carrying amount of goodwill allocated) of the related asset group or set of asset groups is compared to its recoverable amount. If the carrying amount of the asset group or set of asset groups is higher than its recoverable amount, the amount of the impairment loss is firstly eliminated by and amortized to the book value of the goodwill included in the asset group or set of asset groups, and then eliminated by the book value of other assets according to the proportion of the book values of assets other than the goodwill in the asset group or set of asset groups. Once the above impairment loss is recognized, it cannot be reversed in subsequent periods. 18. Estimated liabilities The Group recognizes an estimated liability when the obligation arising from a contingency meets the following conditions: - the obligation is a present obligation of the Group; - it is probable that an outflow of economic benefits from the Group will be required to settle the obligation; - a reliable estimate can be made of the amount of the obligation. Estimated liabilities are initially measured according to the current best estimate for the expenditure necessary for the performance of relevant present obligations, with comprehensive consideration given to factors such as the risks, uncertainty and time value of money relating to contingencies. The book value of the estimated liabilities should be reviewed at each balance sheet date. If there is definite evidence showing that the book value cannot reflect the present best estimate, the book value should be adjusted according to the best estimate. 87 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 17. Impairment of assets (continued) 19. Revenue Revenue is recognized only when an inflow of economic benefits is probable, the amount of which can be reliably measured, and all of the following conditions are qualified. Revenue from the sale of goods The Group has transferred to the buyer the significant risks and rewards of ownership of the goods; the Group retains neither continuing management involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably. Revenue from the rendering of services When the outcome of a transaction involving the rendering of services can be estimated reliably at the balance sheet date, revenue associated with the transaction is recognized using the percentage of completion method, or otherwise, the revenue is recognized to the extent of costs incurred that are expected to be recoverable. The outcome of a transaction involving rendering of services can be estimated reliably when all of the following conditions are satisfied: the amount of revenue can be measured reliably; it is probable that the associated economic benefits will flow to the Group; the stage of completion of the transaction can be measured reliably; the costs incurred and to be incurred for the transaction can be measured reliably. The Group determines the stage of completion of a transaction involving the rendering of services by using the proportion of services performed to date to the total services to be performed. Interest income It should be measured based on the length of time for which the Group’s cash is used by others and the applicable effective interest rate. Rental income Rental income from operating leases is recognized by the lessor in the income statement on a straight-line basis over the lease term. 88 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 20. Leases A finance lease is a lease that transfers in substance all the risks and benefits incident to ownership of an asset. An operating lease is a lease other than a finance lease. The Group recording the operating lease as a lessee Lease payments under an operating lease are recognized by a lessee on a straight-line basis over the lease term, and either included in the cost of another related asset or charged to the income statement for the current period. The Group recording the operating lease as a lessor Rental income under a finance lease is recognized by a lessor on a straight-line basis over the lease term, through profit or loss. 21. Employee benefits Employee benefits are all forms of consideration given and other relevant expenditure incurred by the Group in exchange for service rendered by employees. During the accounting period that the employees render services to the Group, the employee benefits payable is recognized as a liability. When the termination benefits fall due more than 1 year after the balance sheet date, if the discounted value is material, it is reflected in present value. The employees of the Group participate in social insurance, such as pension insurance, medical insurance, non-employment insurance, etc., and housing accumulation fund, which is managed by local government and the relevant expenditure, is recognized, when incurred, in the costs of relevant assets or the profit and loss for the current period. When the Group terminates the employment relationship with employees before the end of the employment contracts or provides compensation as an offer to encourage employees to accept voluntary redundancy, a provision shall be recognized for the compensation arising from termination of employment relationship with employees, with a corresponding charge to the income statement for the current period, when both of the following conditions are satisfied: (a) the Group has a formal plan for termination of employment relationship, or has made an offer for voluntary redundancy, which will be implemented immediately; (b) the Group cannot unilaterally withdraw from the termination plan or the redundancy offer. 89 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 21. Employee benefits (continued) The same principle is applied to the early retirement plan, as it is for the above-mentioned termination benefits. The salaries, social insurance premiums, etc., to be paid for the early retired employees, during the period from the date when the employees stop rendering service to the normal retirement date, should be recognized as employee benefits payable and charged to the income statement of the current period, when the above conditions for recognising the termination benefit plan are satisfied. 22. Income taxes Income tax comprises current and deferred tax. Income tax is recognized as an income or an expense and include in the income statement for the current period, except to the extent that the tax arises from a business combination or if it relates to a transaction or event which is recognized directly in equity. Current tax is the amount of income tax payable in respect of the taxable profit for the current period. Taxable profit is the profit for current period, which is determined in accordance with rules established by the taxation authorities. At the balance sheet date, current income tax liabilities (or assets) for the current and prior periods are measured at the amount expected to be paid to (or recovered from) the tax authorities according to the requirements of the tax laws. For temporary differences at the balance sheet date between the tax bases of assets and liabilities and their book values, and temporary differences between the book values and the tax bases of items, the tax bases of which can be determined for tax purposes, but which have not been recognized as assets and liabilities, deferred taxes are provided using the liability method. 90 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 22. Income taxes (continued) A deferred tax liability is recognized for all taxable temporary differences, except: 1) to the extent that the deferred tax liability arises from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction which contains both of the following characteristics: (i) the transaction is not a business combination; and (ii) at the time of the transaction, it affects neither the accounting profit nor taxable profit or loss. 2) in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in jointly-controlled enterprises, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. A deferred tax asset is recognized for deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilized except: 1) where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and 2) in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognized to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized. 91 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 22. Income taxes (continued) At the balance sheet date, deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, according to the requirements of tax laws. The measurement of deferred tax assets and deferred tax liabilities reflects the tax consequences that would follow from the manner in which the Group expects at the balance sheet date, to recover the assets or settle the liabilities. At the balance sheet date, the Group reviews the book value of diferred tax assets. If it is probable that sufficient taxable income cannot be generated to use the tax benefits of deferred tax assets, the book value of deferred tax assets should be reduced. When it is probable that sufficient taxable income can be generated, the amount of such reduction should be reversed. 23. Significant accounting judgements and estimates Judgements When applying the accouoting policies of the Group, except for accounting estimates, management will make accounting judgements which have significant effects on the financial statements: The Group makes a judgment on whether there is any sign of possible assets impairment on the day of balance sheet date at least. If there is any sign of possible assets impairment, the assets concerned should be subject to impairment test based on the estimated recoverable amount. The recoverable amount shall be determined in light of the higher one of the net amount of the fair value of the assets minus the disposal expenses and the current value of the expected future cash flow of the assets. When making an estimate of the present value of the future cash flow of an asset, the Group should estimate the future cash flows of the asset or the relevant assets group, with the appropriate discount rate selected to reflect the repsent value of the future cash flows. Uncertainty of accouting estimates The crucial assumptions of significant accounting estimates in future and other crucial sources of estimated uncertainty, which may result in the significant adjustments to the book value of the subsequent accouting period, are as the following: 92 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 23. Significant accounting judgements and estimates (continued) Uncertainty of accouting estimates (continued) Impairment of goodwill Goodwill is subject to the impairment test yearly at least, which brings the estimates of the use value of the assets group that is allocated in goodwill. When making an estimate of the use value of the assets concerning goodwill, the Group should estimate the future cash flows of the assets group concerned, with the approriate discount rate to reflect the present value of the cash flows. Bad Debt Provisions Provisions are made under the allowance method. For each individually significant receivables, the impairment test should be conducted individually. Where there is evidence that indicates impairment, the loss should be recognized with the respective provision accured, equaling to the difference between the present value of the future cash flows and the book value of receivables. For other receivables concerned, management should accrue the general provisions, along with the receivables individually tested while no impairment incurred, taking in account the collectibility. Development Expenditures When determining the capitalization amount, management should make assumptions such as the expected cahs flows of the assets related, the applicable discount rate and expected benefit period. Deferred Tax Assets The Group should recognize the deferred income tax assets arising from all the existing unutilized tax deficits and deductible temporary differences to the extent of the amount of the taxable income which it is most likely to obtain and which can be deducted from the deductible temporary differences. Enormous accounting judgments, as well as the tax planning are compulsory for management to estimate the time and amount of prospective taxable profits and thus determine the appropriate amount of the deferred tax assets concerned. 93 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) III. Significant accounting policies and estimates (continued) 23. Significant accounting judgements and estimates (continued) Uncertainty of accouting estimates (continued) Deferred Tax Assets (continued) As is stated in Note II, the Group implements the Accounting Standards for Business Enterprises from 1 January 2008. For changes in accounting policies arising from the first-time adoption of the Accounting Standards for Business Enterprises, the Group adopts the following method to deal with them, according to provisions relating to the first-time adoption of the Accounting Standards for Business Enterprises. IV. Taxes The major categories of taxes and surcharges with the respective tax rates applicable to the Group are as follows: Value added tax (“VAT”) – In accordance with the relevant tax laws in the PRC, the VAT rate for domestic sales is 17%. VAT is levied at 17% on the invoiced value of sales of goods and rendering of srvices, and is payable by the purchaser. The Group is required to pay the VAT it collects to the tax authority, but may deduct the VAT it has paid on eligible purchases. Business tax – In accordance with the relevant tax laws in the PRC, Business Tax is levied at 5% on the relevant revenue. City maintenance and construction surtax – In accordance with the relevant tax laws in the PRC, it is levied at 7% on the turnover taxes paid. Educational surcharge – In accordance with the relevant tax laws in the PRC, it is levied at 3% on the turnover taxes paid. 94 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) IV. Taxes (continued) The major categories of taxes and surcharges with the respective tax rates applicable to the Group are as follows (continued): Corporate income tax – In accordance with the relevant tax laws in the PRC, the Group is subject to a corporate income tax rate of 15%~25% on its taxable income. Corporate income tax – The Company is subject to the PRC EIT and local income tax. As the Company is qualified as a domestic enterprise in encouraged industries, the Company is entitled to a preferential EIT rate of 15% from 2001 to 2010, in accordance to Circular on the Issue of Preferential Taxation Policies for Western Development Program (Paragragh 1, Article 2, No 202-2001) collectively issued by the Ministry of Finance, the National Taxation Bureau and the Customs General Administration of PRC and also approved by the Guo Shui Han-Yu (2002) No 186. According to Corporation Income Tax Law, the statutory Corporation Income Tax rate of the group changes to 25%~15% from 33%. V. Consolidation scope On 31 December 2008, the main subsidiaries of the Group are as follows: Total proportion of shares held Totalproportion Company Name of Subsidiaries Registration Nature of Business Registered Investment Direct(%) Indirect(%) of voting shares Code Place Capital of the Group (RMB 10,000) (RMB 10,000) Nanjing Changan Auto- Nanjing Manufacturer, development and 60,181 47,291 73.60 - 83.22 75410659-X Mobile Co., Ltd seller of mini cars and spare parts Hebei Changan Auto- Dingzhou Manufacturer, development and 26,469 21,249 80.11 - 93.45 73872432-0 Mobile Co., Ltd seller of mini cars and spare parts Chongqing Changan International Chongqing Seller and agent of import / export 1,376 1,307 95.00 - 100.00 20282099-8 Automobile Sales Co., Ltd services of commodities and tech niques Chongqing Changan Auto- Chongqing Seller of cars and spare parts 4,850 4,850 100.00 - 100.00 20289809-0 Mobile Sales Co., Ltd Chongqing Anfu Auto- Chongqing Seller of cars and spare parts 3,200 1,600 50.00 - 50.00 73657088-2 Mobile Co., Ltd. Chongqing Changan Special Chongqing Seller of special cars and spare parts 500 250 50.00 - 50.00 74534852-X Automobile Co., Ltd and vehicles maintainance Chongqing Changan Auto- China Seller of Changan series cars and 1,900 1,900 90-100 10-0 100.00 Mobile sales subsidiaries spare parts Chongqing Changan Auto- Chongqing Seller of cars and spare parts 3,000 3,000 99.00 1.00 100.00 75308943-3 Mobile supporting service Co., Ltd. Chongqing Changan Auto- Chongqing Manufacturer and seller of Car 11,550 11,616 100.00 - 100.00 66089542-8 Mobile Mould Co. Ltd moulds and car spare parts Chongqing Changan New Engergy Chongqing Developer, Manufacturer and seller 2,900 1,885 65.00 - 65.00 67613816-5 Automobile Co. Ltd* of new-energy cars Chongqing Changan Europe Turin, Research and development of EUR 10 97 100.00 - 100.00 09372440017 Design Academy Co. Ltd. Italy vehicles 95 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) V. Consolidation scope (continued) *The company established Chongqing Changan New Engergy Automobile Co. Ltd with cash investment in November 2008. The difference between proportion of voting shares and proportion of shares held is resulted due to the voting right consigned from minority share holders. Although the Group owns more than half of the voting power of the following investees, it does not have control over the investees as: Total proportion of shares held Totalproportion Company Name of Subsidiaries Registration Nature of Business Registered Investment Direct(%) Indirect(%) of voting shares Code Place Capital of the Group (RMB 10,000) (RMB 10,000) Chongqing Changan Suziki Chongqing Manufacturer and seller of cars USD 7,000 23,991 51.00 - 51.00 62190016-7 Automobile Co., Ltd. and spare parts The parent company does not have control over Jiangling Holding Co., Ltd (Hereafter simply called as ‘Jiangling Holding’), due to the fact that neither main financial nor operating proposals of the company can be decided by the parent company. Therefore, it is not included in scope of consolidated financial statements, and the retrospective adjustments have been made. Refer to Note III 22 for details. Except for the 2008 new subsidiary of Chongqing Changan New Engergy Automobile Co. Ltd which is merged into consolidation, the scope of consolidated financial statements remains the same as the previous year. VI． Notes to the consolidated financial statements 1. Cash and cash equivalents 2008 2007 Original Currency Rate Equivalent Original Currency Rate Equivalent to RMB to RMB Cash — RMB 66,534.65 3,183,749.50 Cash in bank — RMB 1,533,080,122.10 1,451,176,179.95 — USD 736,469.74 6.8346 5,033,476.08 2,444,588.50 7.3046 17,856,741.16 Other cash — RMB 85,984,026.10 111,489,829.43 — Cash and cash equivalents 1,624,164,158.93 1,583,706,500.04 On 31 December 2008, the book value of restricted ownership of cash and cash equivalent is RMB 85,984,026.10 (2007: RMB 111,489,829.43). Please refer to Note VI 19. Interest income earned on current deposits is calculated by using current deposit interest rate. 96 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 2. Notes receivable (continued) 2008 2007 Bank acceptance 1,692,663,074.98 1,569,870,506.83 Trade acceptance 241,420,000.00 26,750,000.00 1,934,083,074.98 1,596,620,506.83 On 31 December 2008, notes with the book value of RMB 22,850,000.00 are discounted as short-term loan. On 31 December 2008, within the aforesaid balance, there is no amount due from shareholders that hold 5% or more of the Company’s voting shares(31 December 2007: nil) On 31 December 2008, notes with the book value of RMB 1,321,529,692.36 are not mature and endorsed with recourse. The mature date is from 1 Jan 2009 to 25 June 2009. On 31 December 2008, there are no notes conversed into accounts receivable due to remitter’s inability to fulfil the payment. 3. Accounts receivable An aged analysis of the accounts receivable as at the balance sheet date is as follows: 31 December 2008 31 December 2007 Within 1 year 365,641,255.25 686,111,233.35 1 to 2 years 34,180,592.15 4,863,949.77 2 to 3 years 2,395,785.63 5,470,296.39 Over 3 years 67,137,516.79 69,834,898.61 469,355,149.82 766,280,378.12 Less: Bad debt provision 70,689,235.98 67,893,738.50 398,665,913.84 698,386,639.62 97 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 3. Accounts receivable (continued) 2008 Amount Percentage Bad debt Provision (%) provision rate(%) Individually significant items 229,756,748.31 48.95 21,860,664.53 9.51 Group of individually insignificant items with simi- lar credit risk characteristics, that has significant risk 126,427,271.96 26.94 48,828,571.45 38.62 Other insignificant items 113,171,129.55 24.11 - - Total 469,355,149.82 100.00 70,689,235.98 2007 Amount Percentage Bad debt Provision (%) provision rate(%) Individually significant items 671,263,259.83 87.60 63,031,854.42 9.39 Group of individually insignificant items with simi- lar credit risk characteristics, that has significant risk 16,252,221.00 2.12 4,861,884.08 29.92 Other insignificant items 78,764,897.29 10.28 - Total 766,280,378.12 100.00 67,893,738.50 The individually significant accounts receivable is analysed individually. If there is any evidence proving them devalued, the provison will be raised according to the recoverability. Items which are individually insignificant but significant as a group are identified as Group of individually insignificant items with similar credit risk characteristics that has significant risk. Changes in provision for bad debts are as follows： At beginning of year Addition Decrease At year end Provision Disposal of Reversal Write-off Subsidiaries 2008 67,893,738.50 5,743,442.80 - 791,325.61 2,156,619.71 70,689,235.98 2007 77,528,641.25 909,421.00 2,444,258.00 4,331,513.75 3,768,552.00 67,893,738.50 A part of provison reversed is due to the receipt of the accounts receivable in this year. 98 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 3. Accounts receivable (continued) On 31 December 2008, balances carried in foreign currency in accounts receivables are USD 17,037,930.33, RMB 116,447,438.63 equivalent, including USD 15,880,505.63 aging within 1 year, RMB 108,536,903.78 equivalent, USD 1,157,424.70 aging from 1 to 2 years, RMB 7,910,534.85 equivalent(On 31 December 2007: USD 19,797,993.00, RMB 144,616,419.67 equivalent aging within 1 year). 2008 2007 Top five debtors, in aggregate 169,620,188.44 215,235,831.59 Percentage 36.14% 28.09% Aging within 1 year within 2 years On 31 December 2008, within the aforesaid balance, there is no amount due from shareholders that hold 5% or more of the Parent Company’s voting shares (31 December 2007: nil). 4. Prepayments An aged analysis of the prepayments as at the balance sheet date is as follows： 2008 2007 Carrying Percentage Carrying Percentage Amount (%) Amount (%) Within 1 year 262,501,911.30 99.33 360,898,589.52 97.38 1 to 2 years 1,692,087.50 0.64 9,709,169.67 2.62 2 to 3 years 71,867.61 0.03 - - 264,265,866.41 00100.00 370,607,759.19 00100.00 On 31 December 2008, within the aforesaid balance, there is no amount due from shareholders that hold 5% or more of the Company’s voting shares(31 December 2007: nil). 99 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 5. Other receivables An aged analysis of the other receivables as at the balance sheet date is as follows： 2008 2007 Within 1 year 61,232,047.96 110,430,106.43 1 to 2 years 18,362,864.44 10,387,040.00 2 to 3 years 3,959,184.14 26,326,882.00 Over 3 years 20,057,745.80 3,585,974.50 103,611,842.34 165,814,582.27 Less: Bad debt provision 9,089,246.65 15,084,579.34 94,522,595.69 150,730,002.93 2008 Amount Percentage Bad debt Provision (%) provision rate(%) Individually significant items 64,699,000.00 62.45 - - Group of individually insignificant items with simi- lar credit risk characteristics, that has significant risk 6,634,213.22 6.40 6,634,213.22 100.00 Other insignificant items 32,278,629.12 31.15 2,455,033.43 7.61 103,611,842.34 100.00 9,089,246.65 2007 Amount Percentage Bad debt Provision (%) provision rate(%) Individually significant items 117,020,462.47 70.57 15,012,894.84 12.83 Group of individually insignificant items with simi- lar credit risk characteristics, that has significant risk - - - Other insignificant items 48,794,119.80 29.43 71,684.50 0.15 165,814,582.27 100.00 15,084,579.34 The individually significant accounts receivable is analysed individually. If there is any evidence proving them devalued, the provison will be raised according to the recoverability. 100 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 5. Other receivables (continued) Items which are individually insignificant but significant as a group are identified as Group of individually insignificant items with similar credit risk characteristics that has significant risk. Changes in provision for bad debts of other receivables are as follows: At beginning of year Addition Decrease At year end Reversal Write-off 2008 15,084,579.34 6,982,130.28 12,876,462.37 101,000.60 9,089,246.65 2007 15,426,171.34 1,413,724.52 - 1,755,316.52 15,084,579.34 2008 2007 Top five debtors, in aggregate 82,388,377.29 96,933,844.31 Percentage 79.52% 58.46% Aging within 2 years within 3 years On 31 December 2008, within the aforesaid balance, there is no amount due from shareholders that hold 5% or more of the Company’s voting shares(31 December 2007: nil). 6. Inventory 2008 2007 Raw materials 414,930,916.48 277,534,188.54 Materials in transit 43,257,641.72 81,227,589.00 Work in progress 221,768,842.24 287,326,408.00 Commodity stock 1,003,235,235.39 1,145,437,369.75 Consigned processiong material 5,193,082.93 925,721.08 Consumables 43,263,063.29 36,601,515.33 1,731,648,782.05 1,829,052,791.70 Less: provision 69,433,481.40 34,370,781.23 1,662,215,300.65 1,794,682,010.47 101 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 6. Inventory (continued) Changes in provision for decline in value of inventory: 2008 At beginning of year Provision Decrease At year end Reversal Write-off Raw materials 3,230,688.40 2,799,282.46 - 1,709,402.93 4,320,567.93 Work in progress - 235,570.54 - - 235,570.54 Commodity stock 30,917,082.83 38,565,273.00 - 4,605,012.90 64,877,342.93 Consumables 223,010.00 - - 223,010.00 - 34,370,781.23 41,600,126.00 - 6,537,425.83 69,433,481.40 2007 At beginning of year Provision Decrease At year end Reversal Write-off Raw materials 3,638,592.08 - 407,903.68 - 3,230,688.40 Commodity stock 19,298,809.57 19,713,320.60 6,467,728.00 1,627,319.34 30,917,082.83 Consumables - 223,010.00 - - 223,010.00 22,937,401.65 19,936,330.60 6,875,631.68 1,627,319.34 34,370,781.23 Inventory provision accural basis Raw materials cost higher than net realizable value Work in Progress cost higher than net realizable value Commodity Stock cost higher than net realizable value On 31 December 2008, the product certificates of finished cars worthy of RMB 47,565,496.00 (2007: RMB 62,628,728.00）are restricted by onwership. Please refer to Note VI, 19 for details. On 31 December 2008, finished goods amounted to RMB 205,158,376.55 (on 31 December 2007, RMB 259,927,214.00) are transported to the dealers. According to the protocol signed among the group, the bank and the dealer, corresponding product certificates are pledged in the bank. 102 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 7. Other current assets 2008 2007 Rent 1,500.00 283,046.00 Others 28,413.95 25,279.00 29,913.95 308,325.00 8． Long-term equity investments 2008 Initial amount At beginning Increase Decrease At year end of year Cost method 148,609,274.00 139,609,274.00 9,000,000.00 - 148,609,274.00 Equity method 747,875,191.00 4,028,988,471.86 1,258,626,637.40 853,015,000.00 4,434,600,109.26 Less: impairment 27,120,000.00 - - - 27,120,000.00 4,141,477,745.86 1,275,007,612.58 853,015,000.00 853,015,000.00 4,556,089,383.26 On 31 December 2008, Cost method of Long-term equity investments is listed as follows: Shareholding Initial Amount At beginning At year end percentage of the year South-western Securities Co., Ltd. 1.07% 50,000,000.00 50,000,000.00 50,000,000.00 Chongqing Changan Jinling Vehicles Parts Co., Ltd. 2.90% 2,900,000.00 2,900,000.00 2,900,000.00 Chongqing International Golf Club Co., Ltd. 9.80% 4,900,000.00 4,900,000.00 4,900,000.00 China South Industry Group Finance Co., Ltd. 15.39% 80,000,000.00 80,000,000.00 80,000,000.00 Sichuan Glass Co., Ltd. 0.64% 1,809,274.00 1,809,274.00 1,809,274.00 Chongqing Ante Import & Export Trading Co., Ltd. 10.00% 3,000,000.00 - 3,000,000.00 Zhong Fa Lian Investment Co., Ltd 10.00% 6,000,000.00 - 6,000,000.00 148,609,274.00 139,609,274.00 148,609,274.00 103 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 8． Long-term equity investments (continued) On 31 December 2008, Equity method of Long-term equity investments is list as follows: Shareholding Initial Accumulated Equity adjustment Year end balance percentage Amount additional profit/loss changes cash dividend accumulated Provision investment in current year received profit/loss changes Current year Accumulated additions additions Joint venture: Chongqing Changan Suzuki Automobile Co., Ltd. 51% 239,905,266.00 - 8,854,976.74 - 922,999,371.19 - - 1,162,904,637.19 Jiangling Holding Co., Ltd. 50% 50,000,000.00 950,000,000.00 10,918,010.44 - 39,600,019.77 - 2,669,322.00 1,042,269,341.77 Changan Ford Mazda Automobile Co., Ltd. 50% 210,901,925.00 1,184,208,792.00 583,235,008.63 (850,000,000.00) 608,096,706.89 200,000.20 19,575,055.20 2,022,782,479.09 Changan Ford Mazda Engine Co., Ltd. 50% 242,568,000.00 314,724,960.00 (55,534,282.49) - (358,429,781.12) - - 198,863,178.88 Associates: Chongqing HelpGo Information Techno- logy Co., Ltd. 21.43% 4,500,000.00 - 3,742,123.88 (3,015,000.00) 3,280,472.33 - 7,780,472.33 747,875,191.00 2,448,933,752.00 551,215,837.20 (853,015,000.00) 1,215,546,789.06 200,000.20 22,244,377.20 4,434,600,109.26 2007 Initial amount At beginning Increase Decrease Incl:cash dividend At year end of year of the Year Cost method 139,609,274.00 139,609,274.00 - - - 139,609,274.00 Equity method 747,875,191.00 3,757,593,018.26 955,395,453.60 684,000,000.00 684,000,000.00 4,028,988,471.86 Less: impairment 27,120,000.00 - - - 27,120,000.00 3,870,082,292.26 955,395,453.60 684,000,000.00 684,000,000.00 4,141,477,745.86 On 31 December 2007, Cost method of Long-term equity investments is listed as follows: Shareholding Initial Amount At beginning At year end percentage of the year South-western Securities Co., Ltd. 1.07% 50,000,000.00 50,000,000.00 50,000,000.00 Chongqing Changan Jinling Vehicles Parts Co., Ltd. 2.90% 2,900,000.00 2,900,000.00 2,900,000.00 Chongqing International Golf Club Co., Ltd. 9.80% 4,900,000.00 4,900,000.00 4,900,000.00 China South Industry Group Finance Co., Ltd. 15.39% 80,000,000.00 80,000,000.00 80,000,000.00 Sichuan Glass Co., Ltd. 0.64% 1,809,274.00 1,809,274.00 1,809,274.00 139,609,274.00 139,609,274.00 139,609,274.00 104 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 8． Long-term equity investments (continued) On 31 December 2007, Equity method of Long-term equity investments is list as follows: Shareholding Initial Accumulated Equity adjustment Year end balance percentage Amount additional profit/loss changes cash dividend accumulated Provision investment in current year received profit/loss changes Current year Accumulated additions additions Joint venture: Chongqing Changan Suzuki Automobile Co., Ltd. 51％ 239,905,266.00 - 66,615,531.45 - 914,144,394.45 - - 1,154,049,660.45 Jiangling Holding Co., Ltd. 50％ 50,000,000.00 450,000,000.00 46,365,337.07 - 28,682,009.33 - 2,669,322.00 531,351,331.33 Changan Ford Mazda Automobile Co., Ltd. 50％ 210,901,925.00 976,997,992.00 945,943,771.26 (684,000,000.00) 874,861,698.26 - 19,375,055.00 2,082,136,670.26 Changan Ford Mazda Engine Co., Ltd. 50％ 242,568,000.00 314,724,960.00 (145,598,869.63) - (302,895,498.63) - - 254,397,461.37 Associates: Chongqing HelpGo Information Techno- logy Co., Ltd. 21.43％ 4,500,000.00 - 1,196,543.45 - 2,553,348.45 - - 7,053,348.45 747,875,191.00 1,741,722,952.00 914,522,313.60 (684,000,000.00) 1,517,345,951.86 - 22,044,377.00 4,028,988,471.86 Impairment provision: 2008 At beginning of year Increase Decrease At year end Cost Method South-western Securities Co., Ltd. 27,120,000.00 - - 2007 At beginning of year Increase Decrease At year end Cost Method South-western Securities Co., Ltd. 27,120,000.00 - - 27,120,000.00 105 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 8． Long-term equity investments (continued) Major financial information of jointly controlled entities and associates: Company Shareholding percentage Proportion of Registered Nature of RegisteredInvestment Direct(%) Indirect(%) voting power address business capital (10,000) (10,000) held Jointly controlled entity Chongqing Changan Chongqing Producer and seller of cars USD 19,000 23,991 51.00 - 51.00 Suzuki Automobile and spare parts Co., Ltd Jiangling Holding NanChang Producer and seller of cars 200,000 100,000 50.00 - 50.00 Co., Ltd. and spare parts Changan Ford Mazda Chongqing Producer and seller of cars USD 35,144 139,511 50.00 - 50.00 Automobile Co., Ltd. and spare parts Changan Ford Mazda Nanjing Producer and seller of automotive USD 13,920 55,729 50.00 - 50.00 Engine Co., Ltd. Engines and spare parts Associate Chongqing HelpGo Chongqing Develop, produce and sell pc soft- 2,100 450 21.43 - 21.43 Information Tech- wares and hardwares; Consulting nology Co., Ltd. and training of computer applica- tion technique; Design and main- tain computer network(except business that requires preliminary permission or approval prescribed in law; Sell statutories; Agent ser- vice commissioned by Chongqing Telecom Company At the end of 2008 At the end of 2008 2008 2008 Total Assets Total Liabilities Business Revenue Net profits Jointly controlled entity Chongqing Changan Suzuki Automobile Co., Ltd. 4,252,883,448.00 2,010,628,364.00 7,247,483,801.03 27,499,571.90 Jiangling Holding Co., Ltd. 3,346,121,249.81 1,189,812,395.24 617,302,774.57 10,304,395.64 Changan Ford Mazda Automobile Co., Ltd. 10,944,258,412.00 6,991,772,793.00 25,346,631,471.00 1,183,156,411.00 Changan Ford Mazda Engine Co., Ltd. 2,443,664,899.92 2,045,731,703.24 899,537,754.00 (110,861,725.83) Associate Chongqing HelpGo Information Technology Co., Ltd. 66,292,873.40 29,986,422.95 175,330,436.86 8,018,797.01 106 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 9． Investment Real Estates 2008 Buildings Land use right Total Original price Opening Balance and Ending Balance 36,632,620.00 46,688,334.08 83,320,954.08 Accumulated depreciation and amotization Opening Balance 5,688,402.67 7,099,740.33 12,788,143.00 Increase 933,567.54 952,442.12 1,886,009.66 Ending Balance 6,621,970.21 8,052,182.45 14,674,152.66 Impairment Provision Opening Balance and Ending Balance - - - Book Value Ending Balance 30,010,649.79 38,636,151.63 68,646,801.42 Opening Balance 30,944,217.33 39,588,593.75 70,532,811.08 2007 Buildings Land use right Total Original price Opening Balance and Ending Balance 36,632,620.00 46,688,334.08 83,320,954.08 Accumulated depreciation and amotization Opening Balance 4,754,835.13 6,147,298.21 10,902,133.34 Increase 933,567.54 952,442.12 1,886,009.66 Ending Balance 5,688,402.67 7,099,740.33 12,788,143.00 Impairment Provision Opening Balance and Ending Balance - - - Book Value Ending Balance 30,944,217.33 39,588,593.75 70,532,811.08 Opening Balance 31,877,784.87 40,541,035.87 72,418,820.74 The above investment real estates are rented to third parties as operating lease. 107 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 10． Fixed assets 2008 Buildings Machinery Vehicles Office and other Total Equipments Original price： Opening balance 955,989,189.42 2,893,494,489.56 42,840,711.88 1,247,126,120.92 5,139,450,511.78 Acquisition 20,244,490.45 122,920,955.78 2,213,535.44 3,480,441.23 148,859,422.90 Transferred from construction in progress 71,178,517.94 235,774,791.23 9,838,404.00 149,588,779.76 466,380,492.93 Disposal and write-off 9,362,373.00 101,377,107.49 11,430,612.61 42,734,420.06 164,904,513.16 Closing balance 1,038,049,824.81 3,150,813,129.08 43,462,038.71 1,357,460,921.85 5,589,785,914.45 Accumulated depreciation Opening balance 108,909,272.73 1,194,594,733.16 20,817,413.06 456,054,696.48 1,780,376,115.43 Provision 41,644,578.42 313,832,776.26 5,142,884.07 109,843,070.36 470,463,309.11 Write-off 6,404,076.67 62,523,690.02 6,970,432.43 29,533,351.98 105,431,551.10 Closing balance 144,149,774.48 1,445,903,819.40 18,989,864.70 536,364,414.86 2,145,407,873.44 Impairment provision： Opening balance 258,815.00 13,835,961.21 - 652,217.86 14,746,994.07 Provision - 110,403,570.27 - - 110,403,570.27 Write-off 258,815.00 13,624,810.34 - - 13,883,625.34 Closing balance - 110,614,721.14 - 652,217.86 111,266,939.00 Book value： Opening balance 846,821,101.69 1,685,063,795.19 22,023,298.82 790,419,206.58 3,344,327,402.28 Closing balance 893,900,050.33 1,594,294,588.54 24,472,174.01 820,444,289.13 3,333,111,102.01 2007 Buildings Machinery Vehicles Office and other Total Equipments Original price： Opening balance 1,049,654,222.62 2,851,957,300.78 44,474,822.02 1,256,398,166.55 5,202,484,511.97 Acquisition 12,178,179.00 56,219,830.78 1,052,665.34 6,245,000.37 75,695,675.49 Transferred from construction in progress 3,786,356.80 62,962,805.00 3,745,640.00 61,034,702.00 131,529,503.80 Disposal and write-off 109,629,569.00 77,645,447.00 6,432,415.48 76,551,748.00 270,259,179.48 Closing balance 955,989,189.42 2,893,494,489.56 42,840,711.88 1,247,126,120.92 5,139,450,511.78 Accumulated depreciation Opening balance 174,920,378.54 982,312,107.69 21,874,597.95 396,981,197.55 1,576,088,281.73 Provision 29,103,832.80 254,762,120.33 4,834,415.00 96,356,684.62 385,057,052.75 Write-off 95,114,938.61 42,479,494.86 5,891,599.89 37,283,185.69 180,769,219.05 Closing balance 108,909,272.73 1,194,594,733.16 20,817,413.06 456,054,696.48 1,780,376,115.43 Impairment provision： Opening balance - 1,137,161.00 - - 1,137,161.00 Provision 258,815.00 13,417,810.21 - 21,547,382.86 35,224,008.07 Write-off 719,010.00 - 20,895,165.00 21,614,175.00 Closing balance 258,815.00 13,835,961.21 - 652,217.86 14,746,994.07 Book value： Opening balance 874,733,844.08 1,868,508,032.09 22,600,224.07 859,416969.00 3,625,259,069.24 Closing balance 846,821,101.69 1,685,063,795.19 22,023,298.82 790,419206.58 3,344,327,402.28 108 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 10． Fixed Assets (continued) On 31 December 2008, buildings with the book value of RMB 106,529,641.84 (2007: RMB 81,527,800.81), machinery with the book value of RMB 126,731,683.11 (2007: RMB 94,915,609.81) is restricted to the right of use. Please refer to Note VI, 19. The original price and book value of the fixed assets that are fully depreciated and still in use are as follows: Buildings Machinery Vehicles Office and other Total Equipments On 31 December 2008 Original price 12,231,819.71 324,236,350.89 3,160,056.84 64,648,147.00 404,276,374.44 Book value 366,954.59 9,671,774.39 78,140.73 2,075,633.54 12,192,503.25 On 31 December 2007 Original price 12,231,819.71 170,402,911.00 2,093,627.86 19,754,676.00 204,483,034.57 Book value 366,954.59 5,112,087.33 62,808.84 592,640.28 6,134,491.04 On 31 December 2008, the certificates of titles of buildings with the book value of RMB 55,829,863.72 are to be gained. Fixed assets that are temporarily laid idle are as follows: Buildings Machinery Vehicles Office and other Total Equipments On 31 December 2008 Original price - 110,962,160.13 - 1,209,490.00 112,171,650.13 Accumulated depreciation - 347,438.99 - 557,272.14 904,711.13 Impairment provision - 110,614,721.14 - 652,217.86 111,266,939.00 Book value - - - - - On 31 December 2007 Original price 261,576.00 32,858,443.46 - 1,209,490.00 34,329,509.46 Accumulated depreciation 2,761.00 19,022,482.25 - 557,272.14 19,582,515.39 Impairment provision 258,815.00 13,835,961.21 - 652,217.86 14,746,994.07 Book value - - - - - On 31 December 2008, there are no fixed assets are rented out or into under finance leases. The book value of buildings for operating lease is RMB 33,338,076.57 (2007: RMB 19,065,796.35). 109 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 11. Construction in progress 2008 Budget Opening Balance Additions Transferred to Other Closing balance Source of ’0000 Fixed assets deduction funds 150,000 unit project - 257,790.00 257,790.00 - - raised/loan Mini-bus production equipment 9,927 78,762,034.67 71,272,672.00 98,786,519.94 85,057.00 51,163,129.73 raised/loan Changan industrial garden project 97,196 55,437,341.80 510,628,194.76 35,027,737.47 - 531,037,799.09 raised/loan Engine production 96,768 21,020,106.17 94,766,551.63 42,146,668.26 - 73,639,989.54 raised/loan Sedan production equipment 28,000 18,409,921.02 33,374,991.35 16,556,398.70 - 35,228,513.67 raised/loan Vehicle research insititute 14,857 46,871,825.80 71,759,525.04 72,824,078.03 - 45,807,272.81 raised/loan Car moulds 19,240 - 98,266,191.82 58,168,417.52 - 40,097,774.30 raised/loan Hebei Changan joint and print base 2,646 18,644,946.21 19,147,438.96 37,792,385.17 - - raised Others - 21,495,273.90 160,162,940.22 104,820,497.84 2,524,667.16 74,313,049.12 raised 260,899,239.57 1,059,378,505.78 466,380,492.93 2,609,724.16 851,287,528.26 2007 Budget Opening Balance Additions Transferred to Other Closing balance Source of ’0000 Fixed assets deduction funds 150,000 unit project 250,997 1,026,758.00 83,000.00 851,968.00 - 257,790.00 raised Mini-bus production equipment 73,353 38,229,252.00 88,347,481.86 46,391,117.19 1,423,582.00 78,762,034.67 raised Changan industrial garden project 125,668 9,391,523.00 55,954,783.57 9,034,866.77 874,098.00 55,437,341.80 raised Engine production 96,768 - 25,178,832.67 4,158,726.50 - 21,020,106.17 raised Sedan production equipment 28,000 4,712,728.00 48,398,363.12 34,665,462.10 35,708.00 18,409,921.02 raised Vehicle research insititute 14,857 - 52,462,661.70 5,590,835.90 - 46,871,825.80 raised Hebei Changan joint and print base 2,646 - 18,949,469.21 304,523.00 - 18,644,946.21 raised Hebei Changan mini-bus production line 889 611,425.00 8,286,351.64 8,897,776.64 - - raised Others - 3,029,037.00 42,809,661.66 21,634,227.70 2,709,197.06 21,495,273.90 raised 57,000,723.00 340,470,605.43 131,529,503.80 5,042,585.06 260,899,239.57 In 2008, the capitalization rate of loan costs to be captitalized and the balance of capitalized loans cost at year end are as follows: Project 2008 2007 Capitalization rate Capitalized cost Mini-bus production equipment 5.07%～5.51% 297,619.16 - Changan industrial garden project 5.07%～5.51% 7,720,526.77 - Engine production 5.07%～5.51% 1,646,972.61 - Sedan production equipment 5.07%～5.51% 282,338.62 - Vehicle research insititute 5.07%～5.51% 520,825.78 - Car moulds 5.07%～5.51% 1,133,245.26 - 11,601,528.20 - On both 31 December 2008 and 31 December 2007，there is no provision for the impairment of construction in progress. 110 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 12. Project materials 2008 2007 Specific materials 3,147,070.12 6,279,679.78 Less: impairment provision - - 3,147,070.12 6,279,679.78 13. Intangible assets 2008 Land use rights Software use Trademark use Non-patent Total rights rights technology Original price: Opening balace 80,972,165.91 10,513,680.32 36,770,000.00 - 128,255,846.23 Additions 985,113.54 22,871,028.81 - 13,272,909.97 37,129,052.32 Deductions - 142,980.00 - - 142,980.00 Closing balance 81,957,279.45 33,241,729.13 36,770,000.00 13,272,909.97 165,241,918.55 Accumulated amortization Opening balance 7,573,481.91 2,741,667.29 18,589,278.21 - 28,904,427.41 Provisions 2,743,503.42 7,727,563.10 2,451,333.58 1,990,936.50 14,913,336.60 Write-off - 142,980.00 - - 142,980.00 Closing balance 10,316,985.33 10,326,250.39 21,040,611.79 1,990,936.50 43,674,784.01 Impairment provision: Opening balance 6,700,000.00 - - - 6,700,000.00 Provision - - - - - Write-off - - - - - Closing balance 6,700,000.00 - - - 6,700,000.00 Book value: Closing balance 64,940,294.12 22,915,478.74 15,729,388.21 11,281,973.47 114,867,134.54 Opening balance 66,698,684.00 7,772,013.03 18,180,721.79 - 92,651,418.82 2007 Land use rights Software use Trademark rights Total rights Original price： Opening balance 58,588,481.31 957,494.32 36,770,000.00 96,315,975.63 Additions 22,383,684.60 9,556,186.00 - 31,939,870.60 Deductions - - - - Closing balance 80,972,165.91 10,513,680.32 36,770,000.00 128,255,846.23 Accumulated amortization： Opening balance 3,382,905.91 391,744.24 16,137,944.21 19,912,594.36 Provision 4,190,576.00 2,349,923.05 2,451,334.00 8,991,833.05 Write-off - - - - Closing balance 7,573,481.91 2,741,667.29 18,589,278.21 28,904,427.41 Impairment provision： Opening balance 6,700,000.00 - - 6,700,000.00 Provision - - - - Write-off - - - - Closing balance 6,700,000.00 - - 6,700,000.00 Book value: Closing balance 66,698,684.00 7,772,013.03 18,180,721.79 92,651,418.82 Opening balance 48,505,575.40 565,750.08 20,632,055.79 69,703,381.27 111 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 13. Intangible assets (continued) On 31 December 2008, land use rights with the book value of RMB 58,733,169.36 (2007：RMB 15,298,392.40) are restricted of use. Please refer to Notes VI 19。 14. Development expenditure 2008 2007 Automobile Development 308,158,911.20 100,710,739.51 The amount of internal research and development expenditure is: 2008 2007 Charged to income statement of the current period 348,697,883.35 268,006,924.41 Recognized as assets 220,721,081.66 100,710,739.51 Incl: transferred into intangible assets 13,272,909.97 - 569,418,965.01 368,717,663.92 15. Goodwill 2008 2007 Opening balance: Cost 83,269,729.00 83,269,729.00 Accumulated impairment 73,465,335.00 73,465,335.00 Book value 9,804,394.00 9,804,394.00 The Group is formed by the capital increase of Hebei Changan Automobile Co., Ltd. and Nanjing Changan Automobile Co., Ltd. The goodwill to Nanjing Changan Automobile Co., Ltd., which is made full provison owing to its accumulated loss, is RMB 73,465,335.00. 112 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 16. Long-term deferred expenses 2008 2007 Gaobao Lake Reservir Greening 1,440,640.00 1,620,720.00 Improvement on leasing buildings 2,148,212.30 Other Projects 1,643,385.40 1,681,307.50 5,232,237.70 3,302,027.50 17． Deferred tax assets/liabilities Recognized deferred tax assets: 2008 Provision for the Accrued expenses Unpaid Tech Unpaid Salary Total impairment of assets and contingent develop. Expense and bonus Liabilities and Ad Expense Opening balance 22,638,015.00 74,414,090.00 3,563,292.90 27,275,123.10 127,890,521.00 Charged to the income statement 3,616,692.49 14,542,556.99 (1,730,016.98) (4,786,295.92) 11,642,936.58 Closing balance 26,254,707.49 88,956,646.99 1,833,275.92 22,488,827.18 139,533,457.58 2007 Provision for the Accrued expenses Unpaid Tech Unpaid Salary Total impairment of assets and contingent develop. Expense and bonus Liabilities and ad Expense Opening balance 19,449,679.12 88,113,175.88 9,801,262.02 8,945,091.78 126,309,208.80 Charged to the income statement 3,188,335.88 (13,699,085.88) (6,237,969.12) 18,330,031.32 1,581,312.20 Closing balance 22,638,015.00 74,414,090.00 3,563,292.90 27,275,123.10 127,890,521.00 The above deferred tax assets were recognized due to the expectation of the company on there to be enough taxable income in the future period to be deducted by tax expense. 18. Provision for the impairment of assets 2008 Opening balance Provision Deductions Closing balance Disposal of Subsidiaries Reversal Write-off Bad debt provision 82,978,317.84 12,725,573.08 - 13,667,787.79 2,257,620.50 79,778,482.63 Provision for obsolete inventory 34,370,781.23 41,600,126.00 - - 6,537,425.83 69,433,481.40 Provision for the impairment of long-term equity investments 27,120,000.00 - - - - 27,120,000.00 Provision for the impairment of fixed assets 14,746,994.07 110,403,570.27 - - 13,883,625.34 111,266,939.00 Provision for the impairment of intangible assets 6,700,000.00 - - - - 6,700,000.00 Provision for the impairment of goodwill 73,465,335.00 - - - - 73,465,335.00 Total 239,381,428.14 164,729,269.35 - 13,667,787.79 22,678,671.67 367,764,238.03 113 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 18. Provision for the impairment of assets (continued) 2007 Opening balance Provision Deductions Closing balance Disposal of Subsidiaries Reversal Write-off Bad debt provision 92,954,812.59 2,323,145.52 2,444,258.00 4,331,513.75 5,523,868.52 82,978,317.84 Provision for obsolete inventory 22,937,401.65 19,936,330.60 - 6,875,631.68 1,627,319.34 34,370,781.23 Provision for the impairment of long-term equity investments 27,120,000.00 - - - 27,120,000.00 Provision for the impairment of fixed assets 1,137,161.00 35,224,008.07 - - 21,614,175.00 14,746,994.07 Provision for the impairment of intangible assets 6,700,000.00 - - - - 6,700,000.00 Provision for the impairment of goodwill 73,465,335.00 - - - - 73,465,335.00 Total 224,314,710.24 57,483,484.19 2,444,258.00 11,207,145.43 28,765,362.86 239,381,428.14 19. Assets restricted by ownership 2008 At beginning of year Additions Deductions At year end Note Pledged assets Notes receivables - 22,850,000.00 - 22,850,000.00 [N1] Commodities 62,628,728.00 47,565,496.00 62,628,728.00 47,565,496.00 [N2] Fixed assets 176,443,410.62 56,817,914.33 - 233,261,324.95 [N3] Intangible assets 15,298,392.40 43,434,776.96 - 58,733,169.36 [N3] Restrited assets due to Other reasons Cash 111,489,829.43 85,984,026.10 111,489,829.43 85,984,026.10 [注4] 365,860,360.45 256,652,213.39 174,118,557.43 448,394,016.41 2007年 At beginning of year Additions Deductions At year end Pledged assets Commodities 72,647,833.00 62,628,728.00 72,647,833.00 62,628,728.00 Fixed assets 76,604,364.00 99,839,046.62 - 176,443,410.62 Intangible assets 4,088,522.00 11,209,870.40 - 15,298,392.40 Restrited assets due to Other reasons Cash 133,509,794.57 72,980,034.86 95,000,000.00 111,489,829.43 286,850,513.57 246,657,679.88 167,647,833.00 365,860,360.45 N1: On 31 December 2008, notes receivables with the book value of RMB 22,850,000.00 are discounted for short-term loans of RMB 22,850,000.00. N2: On 31 December 2008, the company pledged commodities of cars with the book value of RMB 47,565,496.00 and cash with the book value of 6,021,765.00 as deposit for short-term loans of RMB 47,995,194.00. 114 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 19. Assets restricted by ownership (continued) N3: On 31 December 2008, fixed assets with the book value of RMB 233,261,324.95 and Land use rights with the book value of are mortgaged for short-term loans of RMB 128,000,000.00. N4: On 31 December 2008, cash with the book value of RMB 74,800,000.00 is used for deposit of notes of acceptance. Cash with the book value of 5,162,261.10 is pledged for short-term loans of RMB 5,241,709.80. 20． Short-term loans 2008 2007 Mortgage loans 128,000,000.00 117,000,000.00 Pledge loans 53,236,903.80 58,700,000.00 Credit loans 870,000,000.00 - Export bill purchased 19,662,291.24 - Bill discounting 22,850,000.00 - Total 1,093,749,195.04 175,700,000.00 The annual interest rate for the above loans is 5.02%~7.92%. Please refer to Notes VI 2 for details of bill discounting. 21. Financial liabilities held for trading 2008 2007 Debentures issued and held for trading - 513,680,000.00 Face value of Interest rate accrued Paid in Total face value 2007-12-31 debentures issued in current year Current year 2008-12-31 In current year Debentures 500,000,000.00* 513,680,000.00 - 4,570,000.00 518,250,000.00 - 115 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 22. Transactional financial liabilities 2008 2007 Classified as financial liabilities measured at fair value and its fluctuations through profit or loss 9,773,408.00 - 23. Notes payable 2008 2007 Bank acceptance 2,176,879,136.98 1,389,450,000.00 Trade acceptance 20,000,000.00 - Total 2,196,879,136.98 1,389,450,000.00 On 31 December 2008, within the aforesaid balance, the acceptance due from shareholders that hold 5% or more of the Group’s voting shares is RMB 163,020,000.00 (31 December 2007: RMB 38,600,000.00). Details are disclosed in Notes VIII, 5. 24. Acounts payables Accounts payables bear no interest, and are normally repaid in four months. On 31 December 2008, the accounts payable to units that hold 5% or more of the Company’s voting shares or to related parties included in this account balance is RMB 38,276,662.71 (31 December 2007: RMB 49,385,519.87). Details are disclosured in Note VIII, 5. On 31 December both 2008 and 2007, there are no significant accounts payable of over one year. 116 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 25. Advances receipts On 31 December 2008, the account balance does not include the advance receipts from units that hold 5% or more of the Company’s voting shares (neither does it on 31 December 2007). On 31 December both 2008 and 2007, there are no significant advance receipts of over one year.s 26. Employee compensation payable 2008 Opening balance Additions Payments Closing balance Salary, bonus, allowance and subisidy 75,876,745.97 486,647,630.34 489,607,939.29 72,916,437.02 Employee benefit 73,891.42 70,647,879.32 70,178,359.55 543,411.19 Labour fund and employee education fund 5,636,060.41 14,641,466.04 13,888,203.31 6,389,323.14 Social insurance premium 18,775,651.66 81,640,686.55 80,178,727.98 20,237,610.23 Housing accumulation fund 6,062,705.80 25,696,310.43 20,971,343.35 10,787,672.88 106,425,055.26 746,879,204.57 742,429,805.37 110,874,454.46 2007 Opening balance Additions Payments Closing balance Salary, bonus, allowance And subisidy 107,123,107.55 414,015,257.83 445,261,619.41 75,876,745.97 Employeebenefit 25,525,423.24 97,127,216.85 122,578,748.67 73,891.42 Labour fund and employee education fund - 15,037,226.80 9,401,166.39 5,636,060.41 Socialinsurancepremium 43,959,843.69 68,180,527.53 93,364,719.56 18,775,651.66 Housing accumulation fund (569,264.06) 17,484,591.00 10,852,621.14 6,062,705.80 176,039,110.42 611,844,820.01 681,458,875.17 106,425,055.26 117 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 27. Taxes payable 2008 2007 Corporate income tax 8,577,434.50 7,845,248.33 Business tax 3,279,247.47 3,651,852.67 Value-added tax (72,464,679.56) (94,163,611.50) City maintenance and construction tax 6,355,334.72 5,983,972.90 Income tax 172,688.22 209,302.39 Consumption tax 109,753,108.27 124,400,987.00 Education additional expenses 2,177,808.05 2,693,378.68 Others 605,881.13 141,589.29 Total 58,456,822.80 50,762,719.76 For the details of tax base and tax rate, please refer to Note IV. 28. Other payables 2008 2007 Dealer earnest money 16,334,249.12 12,296,966.00 Warrenty 36,449,174.27 35,265,559.51 Repair fees 32,756,418.35 42,473,622.47 Rental fees 187,680.00 3,568,120.00 Advertisment fees 18,940,840.63 19,160,065.42 Sales bonus 1,291,774.83 15,924,658.54 Discount transfer - 4,430,104.00 Technical assignment fees - 7,173,548.75 Warehousing and transport fees 101,061,859.11 75,514,260.90 Loans temporarily 9,424,467.06 10,927,217.33 Information technology expense 3,181,927.25 6,686,479.15 Project funds 72,159,774.86 25,780,000.00 Project earnest money 14,076,409.96 22,839,205.83 Other intercourse funds 61,436,927.65 57,898,184.29 367,301,503.09 339,937,992.19 On 31 December 2008, the account balance does not include the other payables from units that hold 5% or more of the Company’s voting shares (neither does it on 31 December 2007). On 31 December 2008, there are no significant accounts of over one year included in the balance of other payables. 118 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 29. Contingent liabilities 2008 Opening balance Increase Decrease Closing balance Reasons for Credit balance Warranty 205,137,407.04 267,108,547.20 258,853,469.32 213,392,484.92 Note 2007 Opening balance Increase Decrease Closing balance Reasons for Credit balance Warranty 241,366,233.00 246,615,842.45 282,844,668.41 205,137,407.04 Note Note: The above represents the warranty cost for repairs and maintenance of vehicles paid during the period. 30. Other current liabilities 2008 2007 Accrued expenses 340,284,573.07 268,573,136.22 Retirement benefit obligations (Notes VI, 30) 3,280,000.00 5,438,000.00 Others 2,368,000.00 41,630.36 345,932,573.07 274,052,766.58 Accrued expenses are listed as follows： 2008 2007 Reasons for Credit balance Water and electricity fee 1,019,127.55 314,884.00 undue Transportation fee 79,252,133.08 73,333,312.00 undue Labor service fee 1,392,185.00 1,176,000.00 undue Technology royalty - 14,686,354.00 Technology transfer charge 6,487,587.11 - undue Trade discount to be paid 227,866,155.85 166,664,513.00 undue Tyre distribution expense 3,831,670.05 4,131,869.39 undue IT service expense 7,099,000.00 987,092.00 undue Market exploit expense - 425,350.00 Rent 2,981,666.67 - undue Others 10,355,047.76 6,853,761.83 undue 340,284,573.07 268,573,136.22 119 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 31. Deferred income 2008 Opening balance Additions Utilization Closing balance Project 863* 20,321,682.87 28,071,406.58 23,190,854.68 25,202,234.77 Test on key technology of hybrid electric vechicles 4,995,746.00 2,000,000.00 457,971.54 6,537,774.46 Development of Hydrogen internal conbustion engine 1,650,033.58 500,000.00 1,464,652.46 685,381.12 Key technology on trans- region platform 1,809,336.18 700,000.00 2,509,336.18 New Vehicle product - 1,000,000.00 169,107.06 830,892.94 Automobile product chain sharing platform - 1,000,000.00 - 1,000,000.00 Others 2,455,987.89 2,495,000.00 1,267,278.21 3,683,709.68 31,232,786.52 35,766,406.58 29,059,200.13 37,939,992.97 2007 年初数 本年增加 本年使用 年末数 Project 863* 20,190,000.50 7,465,000.00 7,333,317.63 20,321,682.87 Test on key technology of hybrid electric vechicles - 5,000,000.00 4,254.00 4,995,746.00 Development of Hydrogen internal conbustion engine - 2,800,000.00 1,149,966.42 1,650,033.58 Key technology on trans- region platform - 3,600,000.00 1,790,663.82 1,809,336.18 Others - 2,941,000.00 485,012.11 2,455,987.89 20,190,000.50 21,806,000.00 10,763,213.98 31,232,786.52 *The special funds for 863 topic research is used to the research of the ISG Changan mixing dynamic system technology platform, the industrialization and independent integrated development of the exporting Changan vehicles, the development of Changan CV11 hybrid electric vehicles, the research of Changan CV8 hybrid electric automobile technology, and so on. On 31 December 2008, the projects were not finished yet. 32 Other non-current liabilities 2008 2007 Compensation for retiree after 1 year 38,493,000.00 38,316,000.00 On 31 December 2008, the balance of compensation payable is RMB 41,773,000.00 (On 31 December 2007, RMB 43,754,000.00), including RMB 3,280,000.00 to be paid within one year, which is recorded in other current liabilities(On 31 December 2007, RMB5,438,000.00). 120 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 33. Share capital On 31 December 2008 the registered and paid-in share capital of the Company is RMB 2,334,022,848.00 (on 31 December 2007: RMB 1,945,019,040.00); the face value of each share is RMB 1.00, and the category and structure of the shares are as follows: 2007 Increase (decrease) in shares during the year 2008 No. of shares Proportion Shares converted Others Subtotal No. of shares Proportion From reserve I. Unlisted tradable shares 1. State-owned shares - - - - - - - 2. Shares held by domestic legal persons 885,906,240 45.548% 157,731,058 (97,250,952) 60,480,106 946,386,346 40.547% 3. Other domestic shares Including: Shares held by domestic non-legal persons - - - - - - - Shares held by domestic natural person 13,972 0.001% 2,794 - 2,794 16,766 0.001% 4. Foreign Shares Including: Shares held by foreign legal persons - - - - - - - Shares held by foreign natural persons - - - - - - Total of unlisted tradable shares 885,920,212 45.549% 157,733,852 (97,250,952) 60,482,900 946,403,112 40.548% II. Listed tradable shares 1. RMB ordinary shares 555,098,828 28.538% 130,469,956 97,250,952 227,720,908 782,819,736 33.540% 2. Foreign-funded shares listed domestically 504,000,000 25.912% 100,800,000 - 100,800,000 604,800,000 25.912% 3. Foreign-funded shares listed overseas - - - - - - - 4. Others - - - - - - - Total of listed tradable shares 1,059,098,828 54.451% 231,269,956 97,250,952 328,,520,908 1,387,619,736 59.452% III Total number of shares 1,945,019,040 100% 389,003,808 - 389,003,808 2,334,022,848 100% 2006 Increase (decrease) in shares during the year 2007 No. of shares Proportion New issue of Share dividend Others Subtotal No. of shares Proportion shares and transfer I. Unlisted tradable shares 1. State-owned shares - - - - - - - 2. Shares held by domestic legal persons 738,255,200 45.548% - 147,651,040 - 147,651,040 885,906,240 45.548% 3. Other domestic shares - - - - - - - - Including: Shares held by domestic non-legal persons - - - - - - - Shares held by domestic natural person 35,331 0.002% - - (21,359) (21,359) 13,972 0.001% 4. Foreign Shares Including: Shares held by foreign legal persons - - - - - - - Shares held by foreign natural persons - - - - - - - Total of unlisted tradable shares 738,290,531 45.550% - 147,651,040 (21,359) 147,629,681 885,920,212 45.549% II. Listed tradable shares 1. RMB ordinary shares 462,558,669 28.538% - 92,518,800 21,359 92,540,159 555,098,828 28.539% 2. Foreign-funded shares listed domestically 420,000,000 25.912% - 84,000,000 - 84,000,000 504,000,000 25.912% 3. Foreign-funded shares listed overseas - - - - - - - 4. Others - - - - - - - Total of listed tradable shares 882,558,669 54.450% - 176,518,800 21,359 176,540,159 1,059,098,828 54.451% III Total number of shares 1,620,849,200 100% - 324,169,840 - 324,169,840 1,945,019,040 100% The increase in share capital during the current year arises from the implementation on 15 April 2008 of the scheme of capital accretion and share allotment which allots 2 dividend shares per 10 shares to all shareholders on the basis of total shares of 1,945,019,040 as at 12 December 2007, and Capital Verification Report [2008]No. 8024, has thus been issued upon Yejing Zhongshen Accouting Firm. 121 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 34. Capital reserves 2008 Opening Balance Additions Deductions Closing Balance Overflow in share capital 1,796,964,940.00 - 389,003,808.00 1,407,961,132.00 Capital reserve transferred arising from the old standards 44,496,899.00 - - 44,496,899.00 Impairment of equity investment 16,815,985.00 200,000.20 - 17,015,985.20 Others 30,911,768.67 1,263,890.31 2,388,727.54 29,786,931.44 1,889,189,592.67 1,463,890.51 391,392,535.54 1,499,260,947.64 2007 Opening Balance Additions Deductions Closing Balance Overflow in share capital 1,796,964,940.00 - - 1,796,964,940.00 Capital reserve transferred arising from the old standards 44,496,899.00 - - 44,496,899.00 Impairment of equity investment 16,815,985.00 - - 16,815,985.00 Others - 30,911,768.67 - 30,911,768.67 1,858,277,824.00 30,911,768.67 - 1,889,189,592.67 35. Surplus reserves 31 December 2007 Increase during Decrease during 31 December 2008 the year the year Statutory surplus 1,018,281,747.50 25,425,297.57 - 1,043,707,045.57 31 December 2005 Increase during Decrease during 31 December 2006 the year the year Statutory surplus 1,018,281,747.50 - - 1,018,281,747.50 According to the provisions of both the Company Law and the Company’s articles of association, surplus reserves are appropriated at 10% of the net profit. 36. Retained earnings 2008 2007 At beginning of year after retrospective adjustment 2,720,578,307.73 2,475,105,128.07 Add: Net profit 31,761,936.77 666,893,971.66 Less: Appropriation to statutory surplus reserves 25,425,297.57 - Dividends transferred to share capital - 421,420,792.00 Retained earnings at the year end 2,726,914,946.93 2,720,578,307.73 122 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 36. Retained earnings (continued) The distribution of annual profit of the year 2008 is determined by the Company’s the twenty-fifth conference of fourth board as: allot RMB 0.18 cash dividend per 10 shares to all shareholders on the basis of total shares of 2,334,022,848 as at 31 December 2008. Total cash allotted amounts to RMB 42,012,411.26 (include tax). The proposal is to be reviewed and approved by the general meeting. 37. Minority interests Minority interests of the Group’s significant subsidiaries are as follows: 2008 2007 Chongqing Changan Automobile Import and Export Co., Ltd. - 711,444.15 Nanjing Changan Automobile Co., Ltd.* - 9,318,939.01 Nanjing Changan Automobile Trading Co., Ltd.* 150,000.00 150,000.00 Hebei Changan Automobile Co., Ltd. 62,864,569.48 71,063,179.54 Chongqing Anfu Automobile Co., Ltd 32,849,686.69 27,525,009.50 Chongqing Changan Special Automobile Co., Ltd 6,463,985.53 5,878,679.00 Chongqing Changan New Engergy Automobile Co., Ltd 9,768,557.56 - 112,096,799.26 114,647,251.20 As Chongqing Changan Automobile Import and Export Co., Ltd and Nanjing Changan Automobile Co., Ltd have excess losses, the minority interest of the two companies is deducted to zero. The group bears excess losses. 38. Operating revenue and expenses Operating revenue listed as follows: 2008 2007 Operating revenue 12,948,843,610.33 13,110,073,241.74 Other operating revenue 446,546,979.17 612,225,900.93 13,395,390,589.50 13,722,299,142.67 123 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 38. Operating revenue and expenses (continued) The operating revenue from principal operations and its expenses are listed as follows: 2008 2007 Revenue Expenses Revenue Expenses Sale of goods 12,893,685,416.43 11,078,948,750.22 13,077,971,536.74 11,184,336,859.86 Rendering of services 55,158,193.90 49,447,101.08 32,101,705.00 26,355,398.00 Total 12,948,843,610.33 11,128,395,851.30 13,110,073,241.74 11,210,692,257.86 2008 2007 Total revenue of the top five clients 1,570,457,243.80 1,715,300,080.75 Proportion by total revenue 11.74% 12.50% 39. Business tax and surcharges 2008 2007 Business tax 5,447,479.88 7,523,559.93 Consumption tax 257,630,794.18 271,425,391.00 City maintenance and construction tax 40,161,368.41 38,235,194.24 Education additional expenses 19,311,664.24 17,233,702.21 Others 12,536.76 445,736.00 322,563,843.47 334,863,583.38 Refer to Note IV ‘Taxes’ for the standard for the calculation and payment of the business tax. 124 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 40. Financial expenses 2008 2007 Interest expense 79,856,952.84 64,717,066.14 Less: interest income 32,994,676.10 26,521,016.14 Less: the amount of capitalized interest 11,601,528.20 - Exchange gain or loss 7,714,454.43 5,385,565.74 Less: the amount of capitalized gain or loss - - Others 6,569,316.19 3,524,333.38 49,544,519.16 47,105,949.12 41． Impairment loss on assets 2008 2007 Bad debt loss (942,214.90) (2,008,368.23) Loss due to the decline in the market price of inventory 41,377,116.00 13,060,698.92 Impairment loss on fixed assets 110,403,570.27 35,224,008.07 150,838,471.37 46,276,338.76 42. Profit and loss from fair value changes 2008 2007 Transactional financial liabilities (9,773,408.00) - 43. Investment income 2008 2007 Long-term equity investment income accounted for by using the equity method 551,233,537.09 907,183,999.39 Long-term equity investment income accounted for by using the cost method 6,818,092.74 - Others investment income 2,793,370.71 24,999,209.14 560,845,000.54 932,183,208.53 125 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 43. Investment income (continued) On the balance sheet, the remittance of the Group’s investment income is subject to no significant restriction. 44. Non-operating income 2008 2007 Gain on the disposal of non-current assets 11,912,779.64 3,692,232.67 Government grants 32,993,404.24 12,936,000.00 Others 3,601,610.62 2,444,804.95 48,507,794.50 19,073,037.62 Government grants comprise the following： 2008 2007 Finance subsidy *1 8,363,404.24 6,600,000.00 New product grants*2 24,630,000.00 5,302,000.00 Others - 1,034,000.00 32,993,404.24 12,936,000.00 *1：Due to the terms of “Notice on Favourable Policies as Supporting of the Settlement of Changan Industrial Garden Project in Chongqing Yubei District”(Chongqing Yubei Government [2002] No.96), the administrative committee of Konggang Industrial Garden in Yubein District gave the company finance grants of RMB 3,628,900.00 as at 31 December 2008 (2007 ： RMB 6,600,000.00); Chongqing Trading Committee gave the company finance grants of RMB 1,463,800.00 (2007: nil); Baoding Finance Bureau gave the company finance grants of RMB 400,000.00 (2007: nil); Hebei Changan Industrial Garden Base Administration gave the company finance grants of RMB 2,800,617.70 (2007: nil); other finance grants amounts to RMB 70,086.54. 126 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 44. Non-operating income (continued) *2：According to "About issued notice" (Chongqing Economic Development [2006] No. 48) and the Office of the Chongqing Municipal Economic Commission "issued by the Chongqing Municipality 2006-2010 the development of new products for enterprise support policy implementation method. (Simply as “Guidance”, the company was granted RMB 24,630,000.00 in 2008 (2007: RMB 5,302,000.00) for the development of new product. According to the accouting method, the grants shall be included in government grants. 45 Non-operating expenses 2008 2007 Loss on the disposal of non-current assets 47,667,642.80 47,498,496.72 Loss arising from physical counting 86,180.00 - Donation expenditure on public welfare 8,030,049.00 2,881,743.00 Vehicle premium 3,489,372.00 - Others 831,207.26 1,667,443.16 60,104,451.06 52,047,682.88 46． Income tax expense 2008 2007 Income tax expense of the current period 27,739,169.56 21,547,599.66 Deferred tax expense (11,642,936.58) (1,581,312.20) 16,096,232.98 19,966,287.46 127 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 46． Income tax expense (continued) The relationship between the income tax expense and the total profit is listed as follows: 2008 2007 Total profit 34,027,294.89 653,939,067.05 Tax at the statutory [or applicable] tax rate (Note) 8,506,823.72 215,799,892.13 Impact of nonuniform tax rates of subsidiaries (29,340,443.89) - Adjustments to current income tax of previous period 731,980.92 - Profit or loss attributable to joint ventures and associates (81,617,460.47) (136,077,599.91) Income not subject to tax (1,022,713.91) (68,972.97) Non-deductible tax expense 10,030,084.81 13,074,518.13 Impact of the change in tax rate - 5,526,089.00 Unrecognized tax loss 111,080,337.25 118,805,893.45 Additional deduction arising from research and development expense (1,373,865.13) (18,782,556.86) Others - (73,433.99) Tax expense under actual tax rate of the group 16,096,232.98 19,966,287.46 Note：The Group accrues the income tax according to the estimated taxable income and suitable tax rate which are acquired in the churchyard of China. 47. Earnings per share The basic EPS is calculated by dividing the net profit of the current period attributable to the ordinary shareholders of the Company by the weighted average number of outstanding ordinary shares. The Company has no dilutive potential common stock. 128 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 48. Other cash paid or received relating to operating and financing activities Significant cash flows are listed as follows: 2008 2007 Other cash received relating to operating activities: Government subsidy 35,766,406.58 34,442,000.00 Interest recevied 32,994,676.10 26,521,016.14 Other cash paid relating to operating activities: Selling expense 959,305,413.10 617,697,785.70 Administrative expense 468,452,168.87 429,747,399.01 Other cash received relating to financing activities: Deposit returned 111,489,829.43 133,509,794.57 Proceeds received from issurance of bonds - 500,000,000.00 Other cash paid relating to financing activities: Repayment of bonds - 500,000,000.00 Deposit paid 11,184,026.10 111,489,827.43 129 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 49. Cash flows from operating activities 2008 2007 Cash flows from operating activities calculated by adjusting the net profit: Net profit 17,931,061.91 633,972,779.59 Plus: impairment provision for assets 150,838,471.37 46,276,338.76 depreciation on fixed assets 472,349,318.77 385,057,052.75 amortization of intangible assets 14,913,336.80 8,991,833.05 amortization of long-term deferred expense 1,157,440.02 3,001,310.00 disposal of fixed assets, intangible assets and others 35,754,863.16 43,806,264.05 loss from fair value changes 9,773,408.00 - financial expense 68,255,424.64 64,717,066.14 investment loss (560,845,000.54) (932,183,208.53) decrease in deferred tax assets (11,642,936.58) (1,581,312.20) decrease in inventory 97,404,009.65 36,672,493.87 decrease in recurrent receivables 166,566,310.86 149,368,380.83) increase in recurrent payables 22,381,998.80 49,538,715.67 Net cash flows from operating activities 484,837,706.86 487,637,713.98 50. Cash and cash equivalents 2008 2007 Cash 1,538,180,132.83 1,472,216,670.61 Including: cash on hand 66,534.65 3,183,749.50 Bank deposits that can be used for payment whenever necessary 1,538,113,598.18 1,469,032,921.11 Other monetary capital that can be used for payment whenever necessary - - Balance of ‘Cash and cash equivalents’ at the end of the year 1,538,180,132.83 1,472,216,670.61 130 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 51. Disposal of subsidiaries 1. Original subsidiaries that are no longer included in the combination during the current year Place of Nature of Total proportion Total proportion Reason for no registration business of shares held of voting shares longer being a by the Group owned by the Group subsidiary Chongqing Changan Automobile Sales Subsidiaries PRC Sale of Cars and 100% 100% Note Spare Parts Note: The Company, the owner of Chongqing Changan Automobile Sales subsidiaries, has signed equity disposal agreements with third parties between March 2008 and May 2008 and agreed to sell its ownership shares of its 4 subsidiaries at the total price of RMB 5,639,517.61. The disposal date is between March 2008 and May 2008. Therefore, as of May 2008, Chongqing Changan Automobile Sales Subsidiaries are no longer included in the combination of the Group. Relavant financial information of Chongqing Changan Automobile Sales subsidiaries is listed as follows: On equity disposal Day 2007 Book Value Book Value Current assets 15,162,691.74 45,583,371.68 Non-current assets 247,714.37 420,215.55 Current liabilities 12,564,259.21 66,065,802.26 2,846,146.90 (20,062,215.03) Gain arising from disposal 2,793,370.71 Disposal price 5,639,517.61 1 January 2008 to disposal day Operating revenue 282,337,511.61 Operating costs 267,839,415.54 Net profit 7,315,191.98 131 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VI． Notes to the consolidated financial statements (continued) 48. Disposal of subsidiaries (continued) 1. Cash flows arising from the disposal of subsidiaries Analysis on the net amount of cash flows arising from the disposal of the above subsidiary is as follows: 2008 Price for the disposal of the subsidiary 5,639,517.61 Cash received for the disposal of the subsidiary 5,639,517.61 Less: cash held by the subsidiary 1,051,757.88 Net cash flows received on the disposal of the subsidiary 4,587,759.73 VII. Segment Report Since over 90% revenue and assets of the Group are from domestic automobile sales, there’s no necessacity to further disclose the segment report regionally, functionally. VIII. Related party relationships and transactions 1． Criteria for the identification of related parties If a party has the power to control, jointly control or exercise significant influence over another party, they are regarded as related parties. Two or more parties are also regarded as related parties if they are subject to control, joint control or significant influence from the same party. The following are related parties of the Group: 1) parents of the Group; 2) subsidiaries of the Group; 3) other enterprises that are controlled by the same parent as the Group; 4) investors who have joint control over the Group; 5) investors who can exercise significant influence over the Group; 6) joint ventures in which the Group is a venturer; 7) associates of the Group; 132 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VIII. Related party relationships and transactions (continued) 1． Criteria for the identification of related parties (continued) 8) principal individual investors of the Group, and close family members of such individuals; 9) key management personnel of the Group or its parent, and close family members of such individuals; 10) other enterprises that are controlled, jointly controlled, or significantly influenced by the Group’s principal individual investors, key management personnel, or close family members of such individuals. Enterprises are not regarded as related parties simply because they are under the common control from the State, if no other related party relationships exist between them. 2． Parents and subsidiaries Name of the Place of Nature of Proportion of shares Corporate Legal parent registration the business in the Company type representative China South Industries Beijing Manufacture and sale of 45.547% Stock Limited Xu Motor Company automobiles, engine, Company Bin Limited comporents The registered capital and paid-up capital is unchanged in 2008. Refer to Note V “Scope of consolidation for consolidated financial statements” for details of the Group’s subsidiaries. 3. Other related parties Name of the related parties Relationship Changan Ford Mazda Engine Co., Ltd Joint ventures Changan Ford Mazda Automobile Co., Ltd Joint ventures Chongqing Changan Suzuki Automobile Co., Ltd Joint ventures Jiangling Holding Co., Ltd Joint ventures Baoding Changan Car Manufacturing Co., Ltd Subsidiary of CSIG Chongqing Changan Construction Co., Ltd Subsidiary of CSIG Chongqing Changan Min Sheng Logistics Co., Ltd. Under common management of the group Chongqing HelpGo Information Technology Co., Ltd Associate of the Group Chongqing Jiangling Construction Co., Ltd Subsidiary of CSIG Sichuan Hongguang Machinery and Electrics Co., Ltd Subsidiary of CSIG Chongqing Changan Kuayue Automobile Co., Ltd Subsidiary of CSIG China South Industries Automobile Co., Ltd - Chongqing Tsingshan Transmission Branch (hereafter referred to as “CSIA-Chongqing Tsingshan Transmission Branch”) Branch of parent 133 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VIII. Related party relationships and transactions (continued) 3. Other related parties (continued) Name of the related parties Relationship China South Industries Automobile Co., Ltd - Sichuan Ningjiang Shock-absorbing Works Branch (hereafter referred to as “CSIANingjiang Shock-absorbing Works Branch”) Branch of parent China South Industries Automobile Co., Ltd - Jian'an Automobile Bridge Branch (hereafter referred to as “CSIA-Jian'an Automobile Bridge Branch”) Branch of parent Chengdu Ningxing Automobile Spring Co., Ltd Subsidiary of parent Longchang Shanchuan Shock-absorbing Works Industries Co., Ltd Subsidiary of CSIG South Tianhe Chassis System Co., Ltd Subsidiary of parent South Yingte Air-conditioner Co, .Ltd Subsidiary of parent Chongqing Changan Jinling Vehicles Parts Co., Ltd Subsidiary of CSIA Chongqing Changan Lingyun Automobile Components Co., Ltd Subsidiary of CSIG Chongqing Changfeng Jiquan Machinery Co., Ltd Subsidiary of CSIA Chongqing Automobile Air-conditioner Co., Ltd Subsidiary of CSIA Chongqing Xiyi Automobile Linkage Rod Co., Ltd Associate of the Group Beijing Beiji Mechanical and Electrical Industry Co., Ltd Subsidiary of CSIG China South Industry Group Finance Co., Ltd Subsidiary of CSIG Changan Automobile Group Co. Ltd Subsidiary of CSIG Chengdu Lingchuan Vehicle Oil Tank Co., Ltd Subsidiary of CSIG Chengdu Lingchuan Special Industry Co., Ltd Subsidiary of CSIG Chengdu Tianxing Instrument and Meter Co., Ltd Subsidiary of CSIG Chengdu Wanyou Economic Technological Development Co., Ltd Subsidiary of CSIG Chengdu Wanyou Filter Co., Ltd Subsidiary of CSIG Hubei Xiaogan Huazhong Automobile Light Co., Ltd Subsidiary of CSIG Southwest Industries Corporation Subsidiary of CSIG Yunnan Xiyi Industries Co., Ltd Subsidiary of CSIG Chongqing Changrong Machinery Co., Ltd Subsidiary of CSIG Chongqing Dajiang Millison Die-Casting Co., Ltd Subsidiary of CSIG Chongqing Dajiang Xinda Vehilcles Shares Co., Ltd Subsidiary of CSIG Chongqing Dajiang Yuqiang Plastic Co., Ltd Subsidiary of CSIG Chongqing Jianshe Automobile Air-conditioner Co., Ltd Subsidiary of CSIG Congqing Jiangda Aluminium Alloy Wheel Co., Ltd Subsidiary of CSIG Chongqing Qingshan Sales Co., Ltd Subsidiary of CSIG Chongqing Shangfang Automobile Fittings Co., Ltd Subsidiary of CSIG Chongqing Wanbing Material Co., Ltd Subsidiary of CSIG Chongqing Wanyou Auto Sales and Service Corporation Subsidiary of CSIG Chongqing Wanyou Economic Development Co., Ltd Subsidiary of CSIG Chongqing Yihong Engineering Plastic Products Co., Ltd Subsidiary of CSIG Guangxi Wanyou Auto Sales and Service Co., Ltd Subsidiary of CSIG Jieyang Wanyou Auto Sales and Service Co., Ltd Subsidiary of CSIG Yunnan Wanyou Auto Sales and Service Co., Ltd Subsidiary of CSIG Guizhou Wanyou Auto Sales and Service Co., Ltd Subsidiary of CSIG 134 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VIII. Related party relationships and transactions (continued) 4. Major transactions between the Group and its related parties (1) Sales of goods to related parties: 2008 2007 Changan Ford Mazda Automobile Co., Ltd - 13,073,357.12 Chongqing Changan Suzuki Automobile Co., Ltd 162,977,897.36 241,475,305.03 Jiangling Holding Co., Ltd 60,673,278.13 71,588,756.37 Chongqing Changan Min Sheng Logistics Co., Ltd. 267,183.61 - Baoding Changan Car Manufacturing Co., Ltd 14,584,185.76 9,324,786.32 Chongqing HelpGo Information Technology Co., Ltd 59,215.61 - Sichuan Hongguang Machinery and Electrics Co., Ltd 29,793,347.13 36,630,046.38 Chongqing Changan Kuayue Automobile Co., Ltd 93,288,818.11 78,837,685.48 CSIA-Jian'an Automobile Bridge Branch 844,708.43 2,362,849.11 CSIA-Chongqing Tsingshan Transmission Branch 632,703.85 1,533,937.35 CSIA Ningjiang Shock-absorbing Works Branch - 2,617,556.16 Longchang Shanchuan Shock-absorbing Vehicles Parts Co., Ltd 2,391,901.43 - South Tianhe Chassis System Co., Ltd 519,021.72 - South Yingte Air-conditioner Co, .Ltd 10,356.15 - Chongqing Changan Jinling Vehicles Parts Co., Ltd 21,363,894.71 52,975,863.37 Chongqing Changan Lingyun Automobile Components Co., Ltd 1,316.85 - Chongqing Automobile Air-conditioner Co., Ltd 90,911.93 - Changan Automobile Group Co. Ltd 11,304,102.27 242,510.76 Chengdu Lingchuan Vehicle Oil Tank Co., Ltd 19,786,573.17 17,537,815.29 Chengdu Lingchuan Special Industry Co., Ltd 65,938,884.54 43,052,951.27 Chengdu Tianxing Instrument and Meter Co., Ltd 1,291,738.84 - Chengdu Wanyou Economic Technological Development Co., Ltd 747,319,416.27 676,049,501.29 Chengdu Wanyou Filter Co., Ltd 1,817.95 - Hubei Xiaogan Huazhong Automobile Light Co., Ltd 494,738.74 - Southwest Industries Corporation 389,924,209.53 392,105,912.85 Chongqing Changrong Machinery Co., Ltd 1,376,378.59 - Chongqing Dajiang Xinda Vehilcles Shares Co., Ltd - 441,025.64 Chongqing Jianshe Automobile Air-conditioner Co., Ltd 138,021.37 - Chongqing Qingshan Sales Co., Ltd 20,391.75 - Chongqing Shangfang Automobile Fittings Co., Ltd 236,774.12 - Chongqing Wanbing Material Co., Ltd 172,844,243.83 163,605,943.49 Chongqing Wanyou Economic Development Co., Ltd 161,358,269.19 157,321,338.10 135 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VIII. Related party relationships and transactions (continued) 4. Major transactions between the Group and its related parties (continued) (1) Sales of goods to related parties (continued): 2008 2007 Chongqing Wanyou Vehicle Sales Service Co., Ltd - 19,625,353.08 Chongqing Yihong Engineering Plastic Products Co., Ltd 427.35 - Guangxi Wanyou Auto Sales and Service Co., Ltd 1,217,183.15 - Guizhou Wanyou Auto Sales and Service Co., Ltd 28,935,558.09 40,180,770.06 Jieyang Wanyou Auto Sales and Service Co., Ltd 7,260,411.81 7,198,196.61 Yunnan Wanyou Auto Sales and Service Co., Ltd 37,878,384.89 62,307,217.24 2,034,826,266.23 1,980,402,494.46 The Group sells vehicles, engines, accessories and provides maintenance service to related parties according to market prices. The amount of the sales of goods to related parties accounts for 15.71% of the amount of sales of goods of the Group in 2008 (2007: 15.94%). (2) Purchases of goods from related parties: 2008 2007 Changan Ford Mazda Automobile Co., Ltd 367,170,475.14 357,080,286.68 Chongqing Changan Suzuki Automobile Co., Ltd 16,748,867.05 5,653,954.51 Jiangling Holding Co., Ltd 33,957,164.00 - Baoding Changan Car Manufacturing Co., Ltd 81,510,723.79 59,995,073.58 Chongqing Changan Min Sheng Logistics Co., Ltd. 5,750,836.55 3,850,889.16 Sichuan Hongguang Machinery and Electrics Co., Ltd 45,335,851.35 55,993,201.41 Chongqing Changan Kuayue Automobile Co., Ltd 111,068,253.87 28,510,533.35 CSIA-Jian'an Automobile Bridge Branch 388,132,929.09 338,532,705.34 CSIA-Chongqing Tsingshan Transmission Branch 369,876,313.72 387,599,152.20 CSIA-Ningjiang Shock-absorbing Works Branch 83,813,327.06 54,521,061.16 Chengdu Ningxing Automobile Spring Co., Ltd 780,475.43 2,014,271.55 Longchang Shanchuan Shock-absorbing Works Industries Co., Ltd 75,053,140.56 49,131,320.97 136 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VIII. Related party relationships and transactions (continued) 4. Major transactions between the Group and its related parties (continued) (2) Purchases of goods from related parties (continued): 2008 2007 South Tianhe Chassis System Co., Ltd 167,249,227.72 144,011,594.03 South Yingte Air-conditioner Co., Ltd 13,566,989.98 46,049,458.59 Chongqing Changan Jinling Vehicles Parts Co., Ltd 219,202,282.26 391,191,376.05 Chonging Changan Linyun Automobile Parts Co., Ltd 140,248,198.87 121,909,486.25 Chongqing Changfeng Jiquan Machinery Co., Ltd 987,220.99 90,578.74 Chongqing Automobile Air-conditioner Co., Ltd 41,064,567.46 45,411,613.16 Chongqing Xiyi Automobile Linkage Rod Co., Ltd 21,006,578.76 19,949,039.63 Beijing Beiji Mechanical and Electrical Industry Co., Ltd 1,272,992.76 1,980,103.42 Changan Automobile Group Co. Ltd 30,918,040.06 31,445,611.47 Chengdu Lingchuan Vehicle Oil Tank Co., Ltd25,436,895.05 29,335,275.17 Chengdu Lingchuan Special Industry Co., Ltd99,322,889.70 81,921,633.34 Chengdu Tianxin Instrument and MeterCo., Ltd 50,613,887.36 50,656,304.25 Chengdu Wanyou Economic Technological Development Co., Ltd 58,622.01 - Chengdu Wanyou Filter Co., Ltd 12,200,527.12 4,531,883.64 Hubei Xiaogan Huazhong Automobile Light Co., Ltd 50,921,163.99 57,343,886.78 Yunnan Xiyi Industries Co., Ltd 15,961,318.89 23,644,536.28 Chongqing Changrong Machinery Co., Ltd 112,710,000.70 35,807,820.39 Chongqing Dajiang Millison Die-Casting Co., Ltd 3,236,620.86 4,271,597.30 Chongqing Dajiang Xinda Vehilcles Shares Co., Ltd 51,674,203.26 47,667,044.19 Chongqing Dajiang Yuqiang Plastic Co., Ltd2,116,068.84 1,126,103.81 Chongqing Jianshe Automobile Air-conditioner Co., Ltd 56,229,403.28 74,937,307.65 Congqing Jiangda Aluminium Alloy Wheel Co., Ltd 12,982,671.57 11,496,649.09 Chongqing Qingshan Sales Co., Ltd 6,623,850.06 6,905,880.44 Chongqing Shangfang Automobile Parts Co., Ltd 57,847,131.04 43,870,112.66 Chongqing Wanyou Economic Development Co., Ltd 159,015,207.82 77,737,126.74 Chongqing Yihong Engineering Plastic Products Co., Ltd 6,711,084.95 12,167,890.35 2,938,376,002.97 2,728,455,001.93 137 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VIII. Related party relationships and transactions (continued) 4. Major transactions between the Group and its related parties (continued) (2) Purchases of goods from related parties (continued): In 2008, the amount of the purchases of goods from related parties is for 26.15% of the amount of purchases of goods of the Group (2007: 26.90 %) The purchase made from affiliated enterprises is market oriented, of which the price is flowed with market price. (3) Other major related-party transactions: Payment of integrated service charges 2008 2007 Changan Automobile Group Co. Ltd Payment of trademark royalties 8,713,470.00 10,621,440.00 Payment of land rental fees 9,317,359.51 9,317,359.52 Payment of building rental fees 19,413,740.40 18,930,086.40 Payment of administrative expenses 72,682,275.50 75,981,178.19 Payment of welfarism 45,219,812.02 36,082,015.00 Payment of education fees 4,999,130.44 4,025,200.00 Payment of fire fighting fees 11,355,553.03 10,043,312.00 Payment of labour union fee 6,665,503.33 5,391,761.00 Others 8,064,831.10 6,449,965.86 186,431,675.33 176,842,317.97 Purchase of logistics services 2008 2007 Chongqing Changan Min Sheng Logistics Co., Ltd. 548,071,556.11 546,195,310.27 The above related pary transations accounts for 100% of the total logistics services to the group (2007: 100%). Providing services 2008 2007 Changan Ford Mazda Co., Ltd 7,234,416.65 6,450,439.96 138 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VIII. Related party relationships and transactions (continued) 4. Major transactions between the Group and its related parties (continued) (3) Other major related-party transactions (continued): Purchase of land use right 2008 2007 Baoding Changan Car Manufacturing Co., Ltd - 16,497,595.00 Purchase of project materials 2008 2007 Chongqing Changan Construction Co., Ltd 141,758,536.00 52,943,952.00 Chongqing HelpGo Information Technology Co., Ltd 23,538,670.92 19,255,948.84 Chongqing Jiangling Construction Co., Ltd - 32,559.00 Changan Automobile Group Co. Ltd 6,359,791.23 17,200,918.00 171,656,998.15 89,433,377.84 The above related pary transations accounts for 16.2% of the total purchase of project materials of the group (2007: 45.46%). Payment of maintenance of information system development 2008 2007 Chongqing HelpGo Information Technology Co., Ltd 16,609,601.53 18,387,684.00 The above related pary transations accounts for 100% of the total Payment of maintenance of information system development of the group (2007: 100%). 139 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VIII. Related party relationships and transactions (continued) 4. Major transactions between the Group and its related parties (continued) (3) Other major related-party transactions (continued): Housing rental revenue 2008 2007 Changan Automobile Group Co. Ltd 4,346,800.00 4,346,800.00 The above related pary transations accounts for 100% of the total housing rental revenue of the group (2007: 100%). Providing staff with technical suppoting 2008 2007 Changan Ford Mazda Engine Co., Ltd - 207,929.00 Changan Ford Mazda Automobile Co., Ltd 2,773,780.00 3,573,903.00 Chongqing Changan Suzuki Automobile Co., Ltd 4,920,248.00 4,661,421.61 7,694,028.00 8,443,253.61 The above related pary transations accounts for 100% of the total revenue providing staff with technical suppoting of the group (2007: 100%). Royalties for technical commission 2008 2007 Jiangling Holding Co., Ltd 5,327,158.75 30,977,289.79 Chongqing Changan Suzuki Automobile Co., Ltd 8,797,882.67 13,129,256.34 14,125,041.42 44,106,546.13 The above related pary transations accounts for 100% of the total royalties for technical commision of the group (2007: 100%). 140 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VIII. Related party relationships and transactions (continued) 4. Major transactions between the Group and its related parties (continued) (3) Other major related-party transactions (continued): Import agent 2008 2007 Chongqing Changan Kuayue Automobile Co., Ltd 2,496,659.66 - Changan Automobile Group Co. Ltd - 2,252,154.51 2,496,659.66 2,252,154.51 The above related pary transations accounts for 100% of the total Import agent charges of the group (2007: 100%). (3) In 2008, The group paid for key management personnel salary RMB 4,523,800.00 (2007: RMB 5,023,991.00). 5. Amounts due from/to related parties 2008 2007 Notes receivable Chongqing Changan Kuayue Vehicle Co., Ltd 500,000.00 - Chongqing Changan Min Sheng Logistics Co., Ltd. - 250,000.00 Chengdu Lingchuan Special Industry Co., Ltd 995,400.00 - Chengdu Wanyou Economic Technological Development Co., Ltd 245,170,000.00 89,978,598.21 Southwest Industries Corporation - 10,100,000.00 Chongqing Wanyou Economic Development Co., Ltd 47,780,000.00 61,200,000.00 294,445,400.00 161,278,598.21 141 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VIII. Related party relationships and transactions (continued) 5. Amounts due from/to related parties (continued) 2008 2007 Acounts receivable Changan Ford Mazda Automobile Co., Ltd 4,949,388.67 4,776,098.19 Chongqing Changan Suzuki Automobile Co., Ltd 32,986,269.78 62,260,841.86 Chongqing Changan Kuayue Automobile Co., Ltd 18,700,050.00 25,735,030.00 Jiangling Holding Co., Ltd 3,746,747.49 126,452,075.00 Baoding Changan Car Manufacturing Co., Ltd 5,604,000.00 6,704,000.00 Chongqing Changan Min Sheng Logistics Co., Ltd. - 155,645.52 Chongqing Changan Jinling Vehicles Parts Co., Ltd 4,000.00 32,156.00 Changan Automobile Group Co. Ltd 1,873,544.17 4,586,680.06 Chengdu Wanyou Economic Technological Development Co., Ltd 9,971,270.55 67,058,328.86 Chongqing Wanbing Material Co., Ltd - 16,766,833.90 Southwest Industries Corporation - 17,937,566.32 Chongqing Dajiang Xinda Vehilcles Shares Co., Ltd 1,234,220.00 1,334,715.00 Chongqing Wanyou Economic Development Co., Ltd 127,204.15 - Jieyang Wanyou Auto Sales and Service Co., Ltd 365,749.20 - 79,562,444.01 333,799,970.71 Other receicable Changan Ford Mazda Automobile Co., Ltd 232,099.77 3,105,268.23 Jiangling Holding Co., Ltd - 72,398,850.88 Baoding Changan Car Manufacturing Co., Ltd 17,063,497.34 - Changan Automobile Group Co. Ltd 553,361.64 - Chengdu Wanyou Economic Technological Development Co., Ltd 23,233.95 - 17,872,192.70 75,504,119.11 142 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VIII. Related party relationships and transactions (continued) 5. Amounts due from/to related parties (continued) 2008 2007 Pre-paid account Changan Ford Mazda Automobile Co., Ltd 22,571,242.61 7,336,781.04 Chongqing Changan Suzuki Automobile Co., Ltd 225.00 477,360.00 Jiangling Holding Co., Ltd 896,417.70 - Changan Automobile Group Co. Ltd - 1,132,332.00 Chongqing Changan Kuayue Automobile Co., Ltd - 3,324,559.68 23,467,885.31 12,271,032.72 Notes payable Chongqing Changan Construction Co., Ltd 51,778,000.00 - Chongqing Changan Min Sheng Logistics Co., Ltd. 2,093,857.56 500,000.00 Chongqing HelpGo Information Technology Co., Ltd 12,660,222.29 - Sichuan Hongguang Machinery and Electrics Co., Ltd 7,000,000.00 1,000,000.00 Chongqing Changan Kuayue Automobile Co., Ltd 30,960,000.00 1,450,000.00 South Automotive Jian'an Axle Co., Ltd 66,000,000.00 - CSIA-Chongqing Tsingshan Transmission Branch 97,020,000.00 38,600,000.00 Chengdu Ningxing Automobile Spring Co., Ltd 150,000.00 150,000.00 Longchang Shanchuan Shock-absorbing Works Industries Co., Ltd 16,500,000.00 11,850,000.00 South Tianhe Chassis System Co., Ltd 30,500,000.00 26,590,000.00 South Yingte Air-conditioner Co., Ltd 6,560,000.00 15,210,000.00 Chongqing Changan Jinling Vehicles Parts Co., Ltd 11,000,000.00 - Linyun Automobile Parts Co., Ltd 300,000.00 350,000.00 Chongqing Changfeng Jiquan Machinery Co., Ltd 410,000.00 - Chongqing Automobile Air-conditioner Co., Ltd 9,540,000.00 11,930,000.00 Chongqing Xiyi Automobile Linkage Rod Co., Ltd 8,350,000.00 2,000,000.00 Chengdu Lingchuan Vehicle Oil Tank Co., Ltd - 1,200,000.00 143 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VIII. Related party relationships and transactions (continued) 5. Amounts due from/to related parties (continued) 2008 2007 Notes payable (continued) Chengdu Lingchuan Special Industry Co., Ltd - 5,500,000.00 Chengdu Tianxing Instrument and Meter Co., Ltd 25,500,000.00 - Chengdu Wanyou Filter Co., Ltd 4,340,000.00 5,470,000.00 Hubei Xiaogan Huazhong Automobile Light Co., Ltd 9,950,000.00 10,230,000.00 Yunnan Xiyi Industries Co., Ltd 10,940,000.00 - Chongqing Changrong Machine Co., Ltd - 10,300,000.00 Chongqing Dajiang Millison Die-Casting Co., Ltd 1,660,000.00 - Chongqing Dajiang Xinda Vehilcles Shares Co., Ltd 5,400,000.00 3,770,000.00 Chongqing Dajiang Yuqiang Plastic Co., Ltd 1,720,000.00 - Chongqing Jianshe Automobile Air-conditioner Co., Ltd 21,500,000.00 - Congqing Jiangda Aluminium Alloy Wheel Co., Ltd 7,550,000.00 3,460,000.00 Chongqing Shangfang Automobile Fittings Co., Ltd 13,800,000.00 5,000,000.00 Chongqing Yihong Engineering Plastic Products Co., Ltd 2,500,000.00 4,760,000.00 455,682,079.85 162,420,000.00 Accounts payable Changan Ford Mazda Automobile Co., Ltd 76,378.25 2,148,301.00 Chongqing Changan Suzuki Automobile Co., Ltd 2,869,566.00 - Jiangling Holding Co., Ltd 24,043,968.00 - Baoding Changan Car Manufacturing Co., Ltd - 2,203,552.83 Chongqing Changan Construction Co., Ltd 1,287,941.00 - Chongqing Changan Min Sheng Logistics Co., Ltd. 7,947,804.20 3,807,251.90 Chongqing HelpGo Information Technology Co., Ltd 19,737.72 - Sichuan Hongguang Machinery and Electrics Co., Ltd 2,632,555.04 8,271,025.00 144 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VIII. Related party relationships and transactions (continued) 5. Amounts due from/to related parties (continued) 2008 2007 Accounts payable (continued) Chongqing Changan Kuayue Automobile Co., Ltd 12,469,775.30 13,296,574.00 CSIA-Jian'an Automobile Bridge Branch 12,915,573.42 5,706,506.18 CSIA-Chongqing Tsingshan Transmission Branch 22,744,354.06 40,521,582.00 CSIANingjiang Shock-absorbing Works Branch 2,616,735.23 3,157,431.69 Chengdu Ningxing Automobile Spring Co., Ltd 414,830.92 467,790.51 Longchang Shanchuan Shock-absorbing Works Industries Co., Ltd 7,732,195.95 3,022,652.79 South Tianhe Chassis System Co., Ltd 25,469,644.37 34,485,716.10 South Yingte Air-conditioner Co., Ltd 1,904,835.69 6,201,655.18 Chongqing Changan Jinling Vehicles Parts Co., Ltd 297,253.23 3,267,494.02 Chonging Changan Lingyun Automobile Parts Co., Ltd 22,601,414.39 16,571,507.26 Chongqing Changfeng Jiquan Machinery Co., Ltd 365,233.16 100,193.10 Chongqing Automobile Air-conditioner Co., Ltd 8,266,816.89 17,382,104.62 Chongqing Xiyi Automobile Linkage Rod Co., Ltd 1,697,922.78 2,140,789.63 Beijing Beiji Mechanical and Electrical Industry Co., Ltd 293,460.00 525,840.00 Changan Automobile Group Co. Ltd 87,550.80 - Chengdu Lingchuan Vehicle Oil Tank Co., Ltd 2,719,924.09 751,312.64 Chengdu Lingchuan Special Industry Co., Ltd 6,674,148.38 1,412,723.09 Chengdu Tianxin Instrument and Meter Co., Ltd 7,187,335.34 11,380,252.99 Chengdu Wanyou Filter Co., Ltd 2,703,456.22 2,403,878.42 Hubei Xiaogan Huazhong Automobile Light Co., Ltd 12,451,404.00 9,690,431.52 Yunnan Xiyi Industries Co., Ltd 2,714,557.23 4,681,576.13 Chongqing Changrong Machine Co., Ltd 14,750,291.10 21,916,500.45 Chongqing Dajiang Millison Die-Casting Co., Ltd 1,378,575.34 1,487,368.93 145 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VIII. Related party relationships and transactions (continued) 5. Amounts due from/to related parties (continued) 2008 2007 Accounts payable (continued) Chongqing Dajiang Xinda Vehilcles Shares Co., Ltd 800,914.01 1,188,615.20 Chongqing Dajiang Yuqiang Plastic Co., Ltd 308,284.40 158,490.43 Chongqing Jianshe Automobile Air-conditioner Co., Ltd 12,015,884.05 19,485,312.59 Chongqing Jiangda Aluminium Alloy Wheel Co., Ltd 5,373,773.33 5,321,091.89 Chongqing Yihong Engineering Plastic Products Co., Ltd 1,018,817.47 798,785.83 Chongqing Wanyou Economic Development Co., Ltd 9,093,468.61 13,486,956.29 Chongqing Qingshan Sales Co., Ltd 404,539.18 - Chongqing Shangfang Automobile Parts Co., Ltd 8,138,314.68 294,399.67 246,489,233.83 257,745,663.88 Advances receipts Chongqing Changan Suzuki Automobile Co., Ltd - 6,281,639.19 Jiangling Holding Co., Ltd 144,260.00 - Chongqing Changan Kuayue Automobile Co., Ltd - 2,714,000.00 Changan Automobile Group Co. Ltd - 19,601,065.27 Chengdu Wanyou Economic Technological Development Co., Ltd 18,424,344.59 3,508,453.82 Southwest Industries Corporation 39,505,361.41 3,384,942.44 Chongqing Dajiang Xinda Vehilcles Shares Co., Ltd - 100,495.00 Chongqing Wanbing Material Co., Ltd 14,719,286.85 2,427,503.00 Chongqing Wanyou Economic Development Co., Ltd 15,117,442.41 11,457,135.01 Guangxi Wanyou Auto Sales and Service Co., Ltd 80,630.00 - Guizhou Wanyou Auto Sales and Service Co., Ltd 1,117,324.29 974,763.25 Jieyang Wanyou Auto Sales and Service Co., Ltd - 695,985.80 Yunnan Wanyou Auto Sales and Service Co., Ltd 298,370.00 2,224,577.00 89,407,019.55 53,370,559.78 146 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VIII. Related party relationships and transactions (continued) 5. Amounts due from/to related parties (continued) 2008 2007 Other payables Baoding Changan Car Manufacturing Co., Ltd - 2,312,736.55 Chongqing Changan Min Sheng Logistics Co., Ltd. 163,395,275.50 114,049,751.23 Chongqing HelpGo Information Technology Co., Ltd 3,181,927.25 6,931,372.48 Chongqing Jiangling Construction Co., Ltd - 49,662.00 Longchang Shanchuan Shock-absorbing Works Industries Co., Ltd - 360,000.00 Chongqing Automobile Air- conditioner Co., Ltd 92,490.73 - Changan Automobile Group Co. Ltd 4,616,601.30 1,386,822.30 Chengdu Wanyou Filter Co., Ltd 120,000.00 120,000.00 Chongqing Qingshan Sales Co., Ltd 18,910.00 - Chongqing Shangfang Automobile Parts Co., Ltd 59,557.01 - 171,484,761.79 125,210,344.56 Amounts due from/to related parties are interest free and unsecured, with no fixed terms of repayment. 6. Cash saved in related parties 2008 2007 Cash in bank China South Industry Group Finance Co., Ltd 247,772,417.56 127,225,030.35 147 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) VIII. Related party relationships and transactions (continued) 7. Loans 2008 2007 Short-term loans China South Industry Group Finance Co., Ltd 47,995,194.00 58,700,000.00 IX． Contingencies As at the balance sheet date, the Group has no contingencies that need to be disclosed. X． Leasing arrangement According to the lease contract signed with the lessee, the minimum lease payment for a non-cancellable lease is as follows: 2008 2007 Within one year (incl. one year) 26,444,352.34 32,940,718.47 One to two years (including two years) 23,389,992.09 28,950,964.21 Two to three years (including three years) 23,365,132.26 27,935,501.50 Over three years 215,240,683.17 82,390,059.50 288,440,159.86 172,217,243.68 XI. Commitments 2008 2007 Capital commitments Contracted, but not provided for 1,591,930,133.83 1,936,335,019.75 148 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) XII. Analysis on financial instruments and their risks Financial risk management objectives and policies The Group’s principal financial instruments comprise bank loans, bonds payables, cash, etc. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as accounts receivable and accounts payable, which arise directly from its operations. In both 2008 and 2007, the Group also enters into no derivative transactions. The main risks arising from the Group’s financial instruments are credit risk, liquidity risk and market risk. The Board of Directors reviews and agrees policies for managing these risks which are summarised below. 1. Classification of financial instruments On 31 December 2008, the book value of different classes of financial instrument is as below: 2008 Financial assets Finanical assets measured by fair value and Held to maturity Loans and accounts Avalable for sale Total their changes through current profit/loss Investment receivables Financial assets Cash and cash equivalent - - 1,624,164,158.93 - 1,624,164,158.93 Notes receivable - - 1,934,083,074.98 - 1,934,083,074.98 Accounts receivables - - 398,665,913.84 - 398,665,913.84 Other receivables - - 94,522,595.69 - 93,152,595.69 - - 4,051,435,743.44 - 4,051,435,743.44 Net gain / (Net loss) - - - - - Financial liabilities Finanical liabilities measured by fair value and Other Financial Total their changes through current profit/loss Liabilities Short term loans - 1,093,749,195.04 1,093,749,195.04 Transactional financial liabilities 9,773,408.00 - 9,773,408.00 Notes payables - 2,196,879,136.98 2,196,879,136.98 Accounts payables - 2,275,651,448.09 2,275,651,448.09 Welfare payables - 110,874,454.46 110,874,454.46 Other payables - 367,301,503.09 367,301,503.09 Other current liabilities - 345,932,573.07 345,932,573.07 Deferred income - 37,939,992.97 37,939,992.97 Other non-current liabilities - 38,493,000.00 38,493,000.00 9,773,408.00 6,466,821,303.70 6,476,594,711.70 Net gain / (Net loss) 9,773,408.00 - 9,773,408.00 149 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) XII. Analysis on financial instruments and their risks (continued) 2 Credit risk Credit risk is the risk of loss on one party of a financial instrument, due to the failure of another party to meet its obligations. The Group trades only with recognized, creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. For transactions that do not occur in the country of the relevant operating unit, the Group does not offer credit terms without the approval of the special department of credit control. With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, notes receivable and other receivables, the Group’s exposure to credit risk arising from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments, listed as book value of financial assets in consolidated financial statements. No gage is required since the Group trades only with recognized, creditworthy third parties. Credit risks are managed by clients, geographic regions, and industries collectively. On 31 December 2008, among the Group’s collections with specific credit risk, 9.94% (2007: 9.6%) and 39.37% (2007:28.09%) of accounts payables of the Group are due from largest client and top five clients respectively. Please refer to Note VI 3 and 5 for quantitative date arising from credit risk exposure due to accounts receivables and other receivables of the Group. 150 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) XII. Analysis on financial instruments and their risks (continued) 2 Credit risk (continued) On 31 December, the amounts of the Group’s financial assets not overdue or impaired, and the maturity profile of the Group’s financial assets overdue but not impaired, are as follows: 2008 Total Not overdue Overdue or impaired within 3 months 3 months to 1 year over 1 year Accounts receivable 398,665,913.84 398,100,113.84 - 406,034.00 159,766.00 Other receivable 94,522,595.69 94,489,595.69 - 3,000.00 30,000.00 Notes receivable 1,934,083,074.98 1,934,083,074.98 - - - 2007年 Total Not overdue Overdue or impaired within 3 months 3 months to 1 year over 1 year Accounts receivable 627,507,785.64 534,979,940.61 92,172,242.33 195,836.70 159,766.00 Other receivable 148,283,512.52 122,963,777.29 - 12,848,426.37 12,471,308.86 Notes receivable 1,596,620,506.83 1,596,620,506.83 - - - On 31 December, not overdue or impaired accounts receivables are related to mass scattered clients with no recent default records. On 31 December, overdue but not impaired accounts receivables are related to independent clients having satisfactory transaction records with the group. Based on previous experience, since credit quality has no significant changes and the receivables can be fully recovered, the Group considers no impairment provision should be made to them. The Group does not hold any gage from or enhance credit limit to these clients. 3 Liquidity risk Liquidity risk is the potential that an enterprised is unable to raise enough funds, to repay the debts related to financial instruments. The Groups adopts cycle liquidity planning instrument to manage capital shortage risks. The instrument takes into consideration the maturity date of financial instruments plus estimated cash flow from the Group’s operations. The Group’s objective is to maintain a balance between continuity of funding and flexibility and sufficient cash to support operating capital through financing functions by the use of bank loans, debentures, etc. 151 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) XII. Analysis on financial instruments and their risks (continued) 3 Liquidity risk (continued) The table below summarises the maturity profile of the Group’s financial assets at 31 December 2008 and 31 December 2007 based on the length of time before the maturity date: 2008 Financial assets Within 1 month 1 to 3 months 3 months to 1 year Total Cash and cash equivalents 1,438,137,702.95 - 186,026,455.98 1,624,164,158.93 Notes receivable 241,869,097.27 1,226,354,895.88 465,859,081.83 1,934,083,074.98 Accounts receivable 46,600,975.42 293,477,541.05 58,587,397.37 398,665,913.84 Other Receivables - 7,306,816.70 87,215,778.99 94,522,595.69 1,726,607,775.64 1,527,139,253.63 797,688,714.17 4,051,435,743.44 Financial liabilities Within 1 month 1 to 3 months 3 months to 1 year 1 to 5 years Total Bank loans 219,662,291.24 104,395,194.00 769,691,709.80 - 1,093,749,195.04 Transactional financial liabilities 581,976.14 1,543,338.16 7,648,093.70 - 9,773,408.00 Welfare payables 114,154,454.46 - - 38,493,000.00 152,647,454.46 Notes payables 336,845,964.24 896,248,330.53 963,784,842.21 - 2,196,879,136.98 Accounts payables 288,168,796.72 958,373,336.22 1,029,109,315.15 - 2,275,651,448.09 Other payables 335,537,757.14 12,908,273.13 18,855,472.82 - 367,301,503.09 1,294,951,239.94 1,973,468,472.04 2,789,089,433.68 38,493,000.00 6,096,002,145.66 2007 Financial assets Within 1 month 1 to 3 months 3 months to 1 year Total Cash and cash equivalents 1,526,216,672.54 2,000,000.00 55,489,827.50 1,583,706,500.04 Notes receivable - 836,425,969.44 760,194,537.39 1,596,620,506.83 Accounts receivable - 601,301,501.36 97,085,138.26 698,386,639.62 Other Receivables - 6,115,509.32 144,614,493.61 150,730,002.93 1,526,216,672.54 1,445,842,980.12 1,057,383,996.76 4,029,443,649.42 Financial liabilities Within 1 month 1 to 3 months 3 months to 1 year 1 to 5 years Total Bank loans - 175,700,000.00 - - 175,700,000.00 Transactional financial liabilities 111,863,055.26 - - 38,316,000.00 150,179,055.26 Notes payables - 23,950,000.00 1,365,500,000.00 - 1,389,450,000.00 Accounts payables - 2,537,470,745.63 253,595,739.35 - 2,791,066,484.98 Other payables 314,176,437.41 25,761,554.78 - - 339,937,992.19 Debentures - 513,680,000.00 - - 513,680,000.00 426,039,492.67 3,276,562,300.41 1,619,095,739.35 38,316,000.00 5,360,013,532.43 The balance of Transactional financial liabilities listed in above table refers to the fair value amount of the foreign-exchange contract on 31 December 2008. 152 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) XII. Analysis on financial instruments and their risks (continued) 4 Market risk Market risk is the risk that the fair values or future cash flows of financial instruments will fluctuate due to changes in market prices. Market risks mainly include interest rate risk and foreign currency risk. Interest rate risk Interest rate risk refers to the risk when the fair value or future cash flows of financial instruments due to floating market interest rate. On 31 December 2008, the Group does not hold long-term financial liabilities bearing floating interest rate and consequently its exposed interest rate risk is relatively low. Foreign currency risk Foreign currency risk is the risk that the fair values and future cash flows of financial instruments will fluctuate due to changes in foreign exchange rates. The Group’s exposures to fluctuation in foreign currency exchange rate mainly arise from operating activities where transactions are settled in currencies other than the units' functional currency and net investment to offshore subsidiary. The Group has transactional currency exposures. Such exposures arise from sales or purchases by operating units in currencies other than the units' functional currency. 6.03% (2007:4.38%) of the Group’s total revenue is valued in currencies other than the units' functional currency. The Group offsets its foreign currency risk by forward exchange contract. The currency of forward exchange contract should be the same as the currency to be hedged. It is the Group’s policy that the contract not signed until firm commitment is made. It is the Group’s policy that the period of hedging derivative instruments consistent with that of the project to be hedged, to make the hedging most effective. 153 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) XII. Analysis on financial instruments and their risks (continued) 4 Market risk (continued) Foreign currency risk (continued) The following table demonstrates the sensitivity at the balance sheet date to a reasonably possible change in the United States dollar exchange rate, with all other variables held constant, of the company's profit before tax (due to changes in the fair value of monetary assets and forward foreign exchange contract): Increase/(decrease) Increase/(decrease) in PBT in exch. Rate due to changes due to forward in fair value of foreign exchange monetary assets contract 2008 If RMB weakens against US dollar 5% 6,074,045.74 (22,411,684.16) If RMB strengthens against US dollar 5% (6,074,045.74) 20,470,028.04 2007 If RMB strengthens against US dollar 5% 8,123,658.04 - If RMB strengthens against US dollar 5% (8,123,658.04) - 5. Fair value There are no significant differences between cash and cash equivalents as well as the fair value of financing instruments, and their corresponding book values. Fair value estimation refers to the estimation made by relevant market information and related financing instruments details at a given time. Due to the subjectivity of estimation, and involvement of uncertain factors and major judgments, the decision is not precise. Any changes in presumptions will result in significant impact on the estimation. 154 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) XIII． Events after the balance sheet date 1、 Ｏn 3 April 2009, the second Extraordinary General Meeting approved the plan to buy back B share: The buyback will be conducted over the 12 months at a maximum price of HK$3.68 per share, purchasing up to 423 million B shares (ie, up to 18.12% of its total share and 70% of B share), and total amount up to HK$909 million. 2、 Ｏn 19 September 2008, the first Extraordinary General Meeting in 2008 approved the porposal to issue debentures of a maximum period of 365 days and up to the amount of RMB 2600 million. Correspondent application files were submitted to China Construction Bank, and the estimated issue date of the first-round debentures amounted to about RMB 900 million would be the first half of year 2009. XIV. Other important events As at the approval date of this financel statement, there are no other importantevents to be disclosed. 155 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) XV. Notes to the corporate financial statements 1. Accounts receivable An aged analysis of the accounts receivable as at the balance sheet date is as follows: 2008 2007 Within 1 year 332,734,003.03 649,763,557.09 1 to 2 years 171,503,791.40 257,636,450.64 2 to 3 years 94,326,605.25 304,394,457.90 Over 3 years 430,610,394.84 138,179,277.05 1,029,174,794.52 1,349,973,742.68 Less: bad debt provision 69,397,021.88 70,606,772.00 959,777,772.64 1,279,366,970.68 2008 Amount Percentage Bad debt Provision (%) provision rate(%) Individually significant items 885,565,593.57 86.05 21,860,664.53 2.47 Group of individually Insignificant items with similar credit risk characteristics, that has significant risk 101,674,465.07 9.88 47,536,357.35 46.75 Other insignificant items 41,934,735.88 4.07 - - Total 1,029,174,794.52 100.00 69,397,021.88 2007 Amount Percentage Bad debt Provision (%) provision rate(%) Individually significant items 1,333,225,371.77 98.76 65,744,888.00 4.93 Group of individually Insignificant items with similar credit risk characteristics, that has significant risk 16,252,221.00 1.20 4,861,884.00 29.92 Other insignificant items 496,149.91 0.04 - - Total 1,349,973,742.68 100.00 70,606,772.00 156 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) XV. Notes to the corporate financial statements (continued) 1. Accounts receivable (continued) As to individually significant items of accounts receivable, which are analyzed respectively, if they are impaired proved by objective evidence, the provision is made according to the receibability. The individually significant accounts receivable is analysed individually. If there is any evidence proving them devalued, the provison will be raised according to the recoverability. Items which are individually insignificant but significant as a group are ientified as Group of individually insignificant items with similar credit risk characteristics that has significant risk. Changes in provision for bad debts are as follows： At beginning of year Provision Decrease At year end Reversal Write-off 2008 70,606,772.00 1,737,381.01 767,247.08 2,179,884.05 69,397,021.88 2007 74,288,233.00 - 3,661,463.00 19,998.00 70,606,772.00 A part of provison reversed is due to the receipt of the accounts receivable in this year. 2008 2007 Top five debtors, in aggregate 676,529,024.04 864,176,897.36 Percentage 65.74% 64.01% Aging within 4 years within 3 years On 31 December 2008, within the aforesaid balance, there is no amount due from shareholders that hold 5% or more of the Group’s voting shares. (2007: nil) 157 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) XV. Notes to the corporate financial statements (continued) 2. Other receivables An aged analysis of the other receivables as at the balance sheet date is as follows: 2008 2007 Within 1 year 164,319,684.05 205,756,891.59 1 to 2 years 1,852,537.46 24,762,148.00 2 to 3 years 3,875,614.14 531,000.00 Over 3 years 1,932,064.91 1,700,065.00 171,979,900.56 232,750,104.59 Less: bad debt provision 5,705,033.43 15,012,894.32 166,274,867.13 217,737,210.27 2008 Amount Percentage Bad debt Provision (%) provision rate(%) Individually significant items 150,000,000.00 87.22 - - Group of individually Insignificant items with similar credit risk characteristics, that has significant risk 10,731,496.41 6.24 5,705,033.43 53.16 Other insignificant items 11,248,404.15 6.54 - - 171,979,900.56 100.00% 5,705,033.43 2008 Amount Percentage Bad debt Provision (%) provision rate(%) Individually significant items 232,750,104.59 100.00% 15,012,894.32 6.45% Group of individually Insignificant items with similar credit risk characteristics, that has significant risk - - - - Other insignificant items - - - - 232,750,104.59 100.00% 15,012,894.32 158 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) XV. Notes to the corporate financial statements (continued) 2. Other receivables (continued) Items which are individually insignificant but significant as a group are identified as Group of individually insignificant items with similar credit risk characteristics that has significant risk. The individually significant accounts receivable is analysed individually. If there is any evidence proving them devalued, the provison will be raised according to the recoverability. On 31 Dec 2008, the amount of RMB 3,250,000.00 in individually significant other receivables is made full provision due to long-term irrecoverability. Changes in provision for bad debts are as follows： At beginning of year Provision Decrease At year end Reversal Write-off 2008 15,012,894.32 3,597,917.58 12,804,777.87 101,000.60 5,705,033.43 2007 14,451,805.00 1,248,139.32 - 687,050.00 15,012,894.32 2008 2007 Top five debtors, in aggregate 155,167,397.00 227,425,850.87 Percentage 90.22% 97.71% Ageing within 3 years within 2 years On 31 December 2008, within the aforesaid balance, there is no amount due from shareholders that hold 5% or more of the Group’s voting shares. (2007: nil). 3． Long-term equity investments 2008 Initial amount At beginning of year Increase Decrease Incl: cash dividend At year end of the Year Cost method： 416,504,135.00 943,634,610.00 95,730,000.00 14,350,500.00 - 1,025,014,110.00 Equity method： 747,875,191.00 4,063,508,008.53 1,251,527,203.37 853,015,000.00 853,015,000.00 4,462,020,211.90 Less: impairment 27,120,000.00 - - - 27,120,000.00 4,980,022,618.53 1,347,257,203.37 867,365,500.00 853,015,000.00 5,459,914,321.90 159 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) XV. Notes to the corporate financial statements (continued) 3． Long-term equity investments (continued) On 31 December 2008, Cost method of Long-term equity investments is list as follows: Initial amount At beginning of year Increase Decrease At year end Nanjing Changan Automobile Co.,Ltd 52,350,000.00 399,435,259.00 180,000.00 - 399,615,259.00 Hebei Changan Automobile Co.,Ltd 36,416,900.00 207,287,236.00 5,200,000.00 - 212,487,236.00 Chongqing Changan Automobile Import and Export Co.,Ltd 9,500,000.00 13,068,580.00 - - 13,068,580.00 Chongqing Changan Service Co.,Ltd 29,700,000.00 29,700,000.00 - - 29,700,000.00 Chongqing Anfu Automobile Co.,Ltd 16,000,000.00 16,000,000.00 - - 16,000,000.00 Chongqing Changan Sales Offices 48,500,000.00 48,500,000.00 - - 48,500,000.00 Chongqing Changan Automobile Sales Subsidiaries 27,294,200.00 32,900,500.00 - 14,350,500.00 18,550,000.00 Chongqing Changan Sepecial-purpose Vehicle Sales Co.,Ltd 2,500,000.00 2,500,000.00 - - 2,500,000.00 Changan Automobile Europe Design Center Co.,Ltd 974,020.00 974,020.00 - - 974,020.00 Chongqing Changan Automobile Mould Co.,Ltd 50,659,741.00 50,659,741.00 65,500,000.00 - 116,159,741.00 South-western Securities Co., Ltd. 50,000,000.00 50,000,000.00 - - 50,000,000.00 Chongqing Changan Jinling Vehicles Parts Co., Ltd. 2,900,000.00 2,900,000.00 - - 2,900,000.00 Chongqing International Golf Club Co., Ltd. 4,900,000.00 4,900,000.00 - - 4,900,000.00 China South Industry Group Finance Co., Ltd 80,000,000.00 80,000,000.00 - - 80,000,000.00 Chongqing Ante Import and Export Co.,Ltd 3,000,000.00 3,000,000.00 - - 3,000,000.00 Sichuan Glass Co.,Ltd 1,809,274.00 1,809,274.00 - - 1,809,274.00 Chongqing Changan new- Energy Auto Co., Ltd. 18,850,000.00 - 18,850,000.00 - 18,850,000.00 Zhong Fa Lian Investment Co., Ltd. 6,000,000.00 - 6,000,000.00 - 6,000,000.00 441,354,135.00 943,634,610.00 95,730,000.00 14,350,500.00 1,025,014,110.00 On 31 December 2008, Equity method of Long-term equity investments is list as follows: Name Shareholding Initial investment Accumulated Equity Adjustment Year end balance Percentage amount additional investment Changes in Cash dividend Accumulated Provision Current year received in changes in Current year accumulated profit/loss additions additions Joint Ventures Chongqing Changan Suzuki Automobile Co., Ltd. 51％ 239,905,266.00 - 8,854,976.74 - 922,999,371.19 - - 1,162,904,637.19 Jiangling Holding Co., Ltd. 50％ 50,000,000.00 950,000,000.00 7,468,009.58 - 70,669,556.44 - 2,669,322.00 1,073,338,878.44 Changan Ford Mazda Automobile Co., Ltd. 50％ 210,901,925.00 1,184,208,792.00 579,585,575.46 850,000,000.00 604,447,272.86 200,000.20 19,575,055.21 2,019,133,045.07 Changan Ford Mazda Engine Co., Ltd. 50％ 242,568,000.00 314,724,960.00 (55,534,282.49) - (358,429,781.12) - - 198,863,178.88 Associate Chongqing HelpGo Information Technology Co., Ltd. 21.43％ 4,500,000.00 - 3,742,123.87 3,015,000.00 3,280,472.32 - - 7,780,472.32 747,875,191.00 2,448,933,752.00 544,116,403.16 853,015,000.00 1,242,966,891.69 200,000.20 22,244,377.21 4,462,020,211.90 2007 Initial amount At beginning of year Increase Decrease Incl: cash dividend At year end of the Year Cost method： 416,504,135.00 950,351,915.00 55,007,941.00 61,725,246.00 - 943,634,610.00 Equity method： 747,875,191.00 3,802,700,870.00 944,807,138.53 684,000,000.00 684,000,000.00 4,063,508,008.53 Less: impairment 27,120,000.00 - - - 27,120,000.00 4,725,932,785.00 999,815,079.53 745,725,246.00 684,000,000.00 4,980,022,618.53 160 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) XV. Notes to the corporate financial statements (continued) 3． Long-term equity investments (continued) On 31 December 2007, Cost method of Long-term equity investments is list as follows: At beginning Initial amount of year Increase Decrease At year end Nanjing Changan Automobile Co.,Ltd 52,350,000.00 396,308,659.00 3,126,600.00 - 399,435,259.00 Hebei Changan Automobile Co.,Ltd 36,416,900.00 206,065,636.00 1,221,600.00 - 207,287,236.00 Chongqing Changan Automobile Import and Export Co.,Ltd 9,500,000.00 13,068,580.00 - - 13,068,580.00 Chongqing Changan Service Co.,Ltd 29,700,000.00 29,700,000.00 - - 29,700,000.00 Chongqing Anfu Automobile Co.,Ltd 16,000,000.00 16,000,000.00 - - 16,000,000.00 Chongqing Changan Sales Offices 48,500,000.00 48,500,000.00 - - 48,500,000.00 Chongqing Changan Automobile Sales Subsidiaries 27,294,200.00 94,625,746.00 - 61,725,246.00 32,900,500.00 Chongqing Changan Sepecial-purpose Vehicle Sales Co.,Ltd 2,500,000.00 2,500,000.00 - - 2,500,000.00 Changan Automobile Europe Design Center Co.,Ltd 974,020.00 974,020.00 - - 974,020.00 Chongqing Changan Automobile Mould Co.,Ltd 50,659,741.00 - 50,659,741.00 - 50,659,741.00 South-western Securities Co., Ltd. 50,000,000.00 50,000,000.00 - - 50,000,000.00 Chongqing Changan Jinling Vehicles Parts Co., Ltd. 2,900,000.00 2,900,000.00 - - 2,900,000.00 Chongqing International Golf Club Co., Ltd. 4,900,000.00 4,900,000.00 - - 4,900,000.00 China South Industry Group Finance Co., Ltd 80,000,000.00 80,000,000.00 - - 80,000,000.00 Chongqing Ante Import and Export Co.,Ltd 3,000,000.00 3,000,000.00 - - 3,000,000.00 Sichuan Glass Co.,Ltd 1,809,274.00 1,809,274.00 - - 1,809,274.00 416,504,135.00 950,351,915.00 55,007,941.00 61,725,246.00 943,634,610.00 On 31 December 2007, Equity method of Long-term equity investments is list as follows : Name Shareholding Intial Accumulated Equity adjustment Year end balance Percentage investment additional Changes in Cash dividend Disposal in Accumulated Provision Investment curernt year received in current year changes in current yaer Accumulated profit/loss current year profit/loss Joint Ventures: Chongqing Changan Suzuki Automobile Co., Ltd.51％ 239,905,266.00 - 61,143,595.45 - - 914,144,394.45 - - 1,154,049,660.45 Jiangling Holding Co., Ltd. 50％ 50,000,000.00 450,000,000.00 43,115,337.00 - - 63,201,546.86 - 2,669,322.00 565,870,868.86 Changan Ford Mazda Automobile Co., Ltd.50％ 210,901,925.00 976,997,992.00 947,787,462.26 (684,000,000.00) - 874,861,697.40 - 19,375,055.00 2,082,136,669.40 Changan Ford Mazda Engine Co., Ltd. 50％ 242,568,000.00 314,724,960.00 (149,308,939.63) - - (302,895,498.63) - - 254,397,461.37 Associates: Chongqing HelpGo Information Technology Co., Ltd.21.43％ 4,500,000.00 - 1,196,543.45 - - 2,553,348.45 - - 7,053,348.45 747,875,191.00 1,741,722,952.00 903,933,998.53 684,000,000.00 - 1,551,865,488.53 - 22,044,377.00 4,063,508,008.53 161 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) XV. Notes to the corporate financial statements (continued) 3． Long-term equity investments (continued) Impairment provision: 2008 At beginning of year Increase Decrease At year end Cost method South-western Securities Co., Ltd. 27,120,000.00 - - 27,120,000.00 2007 At beginning of year Increase Decrease At year end Cost method South-western Securities Co., Ltd. 27,120,000.00 - - 27,120,000.00 The major financial information of joint ventures and associates of the Group refers to Notes VI, 8. 4. Operating revenue and expenses The operating revenue is listed as follows: 2008 2007 Operating revenue from principal business 8,013,474,054.80 8,430,837,869.00 Other operating revenue 607,460,158.63 644,183,652.62 8,620,934,213.43 9,075,021,521.62 162 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) XV. Notes to the corporate financial statements (continued) 4. Operating revenue and expenses (continued) The operating revenue from principal operations and its expenses are listed as follows: 2008 2007 Revenue Expense Revenue Expense Sales of goods 7,966,782,965.75 6,837,609,389.59 8,357,872,741.02 7,169,101,051.35 Rendering of services 46,691,089.05 40,220,608.72 72,965,127.98 64,793,033.65 8,013,474,054.80 6,877,829,998.31 8,430,837,869.00 7,233,894,085.00 2008 2007 Amount of revenue from the top five clients 1,217,514,716.78 1,308,533,861.38 Proportion by total operating revenue 14.12% 14.42% 5. Investment income 2008 2007 Long-term equity investment income 544,116,403.17 903,933,998.53 Gain arising from dividends of subsidiaries 13,973,273.62 8,756,820.86 Gain or loss arising from the disposal of long-term equity investments (23,475,493.56) 1,338,712.41 534,614,183.23 914,029,531.80 On 31 December 2008 and 31 December 2007, the remittance of the Company’s investment income is subject to no significant restriction. 163 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) XV. Notes to the corporate financial statements (continued) 6. Other cash paid or received relating to operating and financing activities Significant cash flows are listed as follows: 2008 2007 Other cash received relating to operating activities: Interest received 42,606,345.52 56,899,755.25 Allowance 34,557,706.58 21,506,000.00 Other cash paid relating to operating activities: Administrative expense 395,989,903.19 412,513,117.00 Selling expense 600,285,883.42 689,549,567.00 Paid foregift and deposit 60,922,856.00 Other cash received relating to financing activities: Receipt of deposit - 95,000,000.00 Receipt from issuing bonds - 500,000,000.00 Other cash paid relating to financing activities: Deposit of Huili International 5,162,261.10 - Payment of bonds - 500,000,000.00 7. Cash flows from operating activities 2008 2007 Cash flows from operating activities calculated by adjusting the net profit: Net profit 246,872,000.55 799,123,506.01 Plus: Impairment provision for assets 32,576,960.64 46,404,219.67 Depreciation on fixed assets 355,087,435.87 326,854,051.00 Amortization of intangible assets 9,540,644.48 2,261,603.05 Amortization of long-term deferred expense 180,080.00 180,080.00 Loss of disposal of fixed assets, intangible assets and other long-term assets 19,390,046.40 15,256,997.72 Loss on the change in fair value - - Financial expenses 56,182,474.30 47,716,003.34 Investment loss (534,614,183.23) (914,029,531.80) Decrease in deferred tax assets 945,913.69 12,214,929.84 Increase in deferred tax liabilities - - Decrease in inventory 34,128,820.16 (357,222,057.00) Decrease in recurrent receivables 98,687,804.19 399,422,253.87 Increase in recurrent payables 145,697,353.67 161,810,875.62 Net cash flows from operating activities 464,675,350.72 539,992,931.32 164 Chongqing Changan Automobile Company Limited Notes to Financial Statement (continued) 2008 (Expressed in Renminbi Yuan) XV. Notes to the corporate financial statements (continued) 8. Cash and cash equivalents 2008 2007 Cash 1,161,803,176.40 1,169,325,053.21 Including: cash on hand - - Bank deposits that can be used for payment whenever necessary 1,161,803,176.40 1,169,325,053.21 Other monetary capital that can be used for payment whenever necessary - - Closing balance of Cash and cash equivalents’ 1,161,803,176.40 1,169,325,053.21 XVI. Approval of the financial statements The financial statements were approved and authorised for issue, upon the resolution of the Company’s the twenty-fifth conference of fourth board of directors on 23 April 2009. According to the Company’s articles of association, the financial statements will be submitted for the decision of the general meeting of shareholders. 165 Chongqing Changan Automobile Company Limited Appendix I 2008 (Expressed in Renminbi Yuan) Appendix I: Supplementary information to financial statements I. Return on equity and earnings per share 2008 2008 Return on equity Earnings per share Fully diluted weighted average RMB Net profit attributable to the Company’s ordinary shareholders 0.32% 0.32% 0.01 Net profit attributable to the Company’s ordinary shareholders after deducting non-recurring profit and loss 0.43% 0.43% 0.01 2007 2007 Return on equity Earnings per share Fully diluted weighted average RMB Net profit attributable to the Company’s ordinary shareholders 8.81% 9.20% 0.29 Net profit attributable to the Company’s ordinary shareholders after deducting non-recurring profit and loss 8.81% 9.21% 0.29 The Company has no dilutive potential ordinary shares. In accordance with the regulations issued by China Security Regulation Commission (2007), No 9 Regulation of Information Disclosure of Public Companies----the Calcaulation and Disclosure of Return of Net Assets and Earning per Share, the Group disclosed the return of net assets and earning per share in the repoting period. 166 Chongqing Changan Automobile Company Limited Appendix I (continued) 2008 (Expressed in Renminbi Yuan) Appendix I: Supplementary information to financial statements (continued) I. Return on equity and earnings per share (continued) Including: the net profit attributable to the Company’s ordinary shareholders, after deducting non-recurring profit and loss 2008 2007 Net profit attributable to the Company’s 24,380,961.59 666,893,971.66 ordinary shareholders Plus(Less)：Non-recurring profit and loss items Profit and loss arising from disposal of non-current assets 32,961,492.45 18,807,054.91 Government grants (32,993,404.24) (12,936,000.00) Profit and loss from fair value changes 9,773,408.00 - Reversal of bad debt provision for receivables that are individually tested for impairment (11,805,718.00) - Non-operating income other than above items (3,601,610.62) (2,444,804.77) Non-operating expenses other than above items 12,436,807.96 4,549,185.98 Effect of the non-recurring profit and loss on income tax 668,824.88 (355,683.51) Net profit after deducting non-recurring profit and loss 31,820,762.02 674,513,724.27 Less: net effect on the profit and loss attributable to minority shareholders (504,986.99) 7,037,798.28 Net profit attributable to the Company’s ordinary shareholders after deducting non-recurring profit and loss 32,325,749.01 667,475,925.99 The Company recognizes non-recurring profit and loss items in accordance with the provisions of “1st Explanation for Disclosure of Listed Company – Non-recurring Profit and Loss” (CSRC Announcement [2008] No 43). Net assets attributable ordinary shareholders of the Company: 2008 2007 Net assets attributable to ordinary shareholders of the Company at year end 7,596,524,812.96 7,573,068,688.23 Weighted average net assets attributable to ordinary shareholders of the Company at year end 7,584,796,750.60 7,249,231,163.23 167 XII．Documents for Future Reference 1. Financial reports with signatures and stamps of the legal representative, the chief accountant and the chief of accounting organization. 2. The original copy of audit report with the stamp of the CPA firm and the signature and stamp of the Certified Public Accountant. 3. All the original documents and manuscripts of the Company which has been disclosed in the reporting period in the newspapers designated by China Securities Regulatory Commission. Annual reports disclosed in other securities markets. Chairman of the Board: Mr. Xu Liuping General Manager: Mr. Zhao Baolin Chongqing Changan Automobile Co., Ltd. 23 April, 2009 168