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Jiangling Motors Corporation, Ltd.

2004 Annual Report

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Important Note The Board of Directors is collectively and individually liable for the truthfulness, accuracy and completeness of the information disclosed in the report and undertakes that the information disclosed herein is truthful, accurate and complete and contains no false statement, misrepresentation or major omission in this report. Director Gordon Spaulding did not attend this Board meeting. He authorized Vice Chairman Mei Wei Cheng to represent him to exercise the voting power. Chairman Wang Xigao, President York Chen, CFO Manto Wong and Chief of Finance Department, Wu Kai, ensure that the Financial Report in this Annual Report is truthful and complete. All financial data in this report are prepared under International Financial Reporting Standards (‘IFRS’) unless otherwise specify. The Annual Report is prepared in Chinese and English. In case of discrepancy, the Chinese version will prevail. Abbreviations:

SEVP Senior Executive Vice President EVP Executive Vice President CFO Chief Financial Officer VP Vice President

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Contents

Chapter I Brief Introduction........................................................................................... 4

Chapter II Operating Highlight ...................................................................................... 5

Chapter III Share Capital Changes & Shareholders .............................................. 6

Chapter IV Directors, Supervisors, Senior Management and Employees..... 9

Chapter V Corporate Governance............................................................................... 18

Chapter VI Shareholders’ Meeting............................................................................... 19

Chapter VII Report of the Board of Directors.......................................................... 21

Chapter VIII Report of the Supervisory Committee ............................................... 28

Chapter IX Major Events .................................................................................................. 29

Chapter X Financial Report .............................................................................................. 35

Chapter XI Catalog on Documents for Reference................................................... 66

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Chapter I Brief Introduction

Company’s Chinese name: 江铃汽车股份有限公司

English name: Jiangling Motors Corporation, Ltd.

Abbreviation: JMC

Company legal representative: Mr. Wang Xigao

JMC’s Board secretary: Mr. Wan Hong (Tel: 86-791-5235675)

Person for financial information disclosure:

Mr. Manto Wong (Tel: 86-791-5232888 extension 6503)

JMC’s securities affairs representative:

Mr. Quan Shi (Tel: 86-791-5232888 extension 6178)

Contact address: No. 509, Northern Yingbin Avenue, Nanchang City,

Jiangxi Province, P.R.C

Switchboard: 86-791-5232888

Fax: 86-791-5232839

E-mail: relations@jmc.com.cn

Company registered address & headquarters address:

No. 509, Northern Yingbin Avenue, Nanchang City, Jiangxi Province, P.R.C

Postal Code: 330001

JMC’s website: http://www.jmc.com.cn

Newspapers for information disclosure: China Securities, Securities Times, Hong Kong

Commercial Daily Website designated by CSRC for publication of JMC’s Annual Report:

http://www.cninfo.com.cn

Place for archiving Annual Report:

Securities Department, Jiangling Motors Corporation, Ltd.

Place of listing: Shenzhen Stock Exchange

Share’s name: Jiangling Motors Jiangling B

Share’s code: 000550 200550

Other Information: 1. JMC was registered with Nanchang Municipal Bureau of Industrial & Commercial

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Administration on November 28, 1993. The company registration was changed with

Jiangxi Provincial Bureau of Industrial & Commercial Administration on January 8, 1997,

on October 25, 2003 and on September 23, 2004.

2. Business License Registration Number: 002473.

3. Taxation Registration Number: 360100612446943.

4. Accounting Firm appointed by JMC for audit under both Chinese Accounting Standards

(‘CAS’) and International Financial Reporting Standards (‘IFRS’):

Name: PwC Zhong Tian CPAs Co., Ltd.

Headquarters address: 325, ShenJiaNong, PuDong New Zone, Shanghai City, P.R.C

Chapter II Operating Highlight I. Certain Financial Indexes of the Reporting Year

Unit: RMB’000 Profit Before Tax 477,965Net Profit 415,134Gross Profit 1,142,024Other Operating Income 35,865Operating Profit 465,602Investment Income 4,228Subsidy Income 0Net Income Outside of Core Business 5,420Net Cash Flows from Operating Activities 749,919Net Increase in Cash and Cash Equivalent 377,534

Impact of IFRS adjustments on the net profit:

Unit: RMB ‘000 Net Assets Net profit December 31, 2004 2004

As Prepared per CAS # 2,510,599 386,858Adjustment per IFRS:

Deferred Tax Asset 46,696 28,021Pension Defined Benefit -113,327 -605Minority Interest 5,051 6,501Employee Bonus and Welfare Fund of

Jiangling Isuzu JV appropriated from Profit after Tax -

-6,194

Others - 553As Restated in Conformity with IFRS 2,449,019 415,134

# Based on the financial statements audited by PwC Zhong Tian CPAs per CAS.

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II. Main accounting data and financial ratios of the past three years. Unit: RMB’000

Item 2004 2003 2002 Sales 5,770,676 5,094,897 4,270,869Net Profit 415,134 382,255 313,108Total Assets 4,179,331 3,821,005 3,636,593Shareholders’ Equity (Excluding Minority Interests) 2,449,019 2,163,366 1,867,431Earnings Per Share (RMB) 0.48 0.44 0.36Net Assets Per Share (RMB) 2.84 2.51 2.16Net Cash Flow Per Share from Operating Activities

(RMB) 0.87 0.92 1.08

Return on Net Asset Ratio 16.95% 17.67% 16.77%

Chapter III Share Capital Changes & Shareholders I. Table of the changes of shareholding structure

Before the

change Change (+, -) After the

change Allocated

Shares

Bonus

Shares

Reserve-conv

erted shares

New

issuance

Others Subtotal

I. Unlisted shares 1. Issuer’s shares 354,176,000 354,176,000

Including: State-owned shares 354,176,000 354,176,000

Domestic legal-person shares

Foreign legal-person shares

Others

2. Other legal-person shares 47,438,000 47,438,000

3. Preferred shares or others

Subtotal 401,614,000 401,614,000II. Listed shares 1. A shares 117,600,000 117,600,000

Including: Management shares 69,540 -63,480 -63,480 6,0602. B shares 344,000,000 344,000,000Overseas-listed

Foreign-invested shares

Others Subtotal 461,600,000 461,600,000

3. Total 863,214,000 863,214,000

1. JMC did not issue shares or derivative securities during the past three years ending December 31, 2004.

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2. Management shares refer to the frozen shares held by directors, supervisors and senior management totaling 6,060 shares at the end of the reporting period. During the reporting period, changes in management shares are because Mr. Sun Min, ex-chairman of the Company, and Mr. Liu Shanbo, ex-director of the Company, no longer took the post of director since September 2003, shares of the Company held by them totaling 64,680 shares were unfrozen in March 2004, and Ms. Xiong Chunying, executive vice-president of the Company, bought the Company’s shares of 1,200 in the reporting period. II. Shareholders 1. JMC had 54,713 shareholders, including 41,606 A-share shareholders and 13,107 B-share shareholders, as of December 31, 2004. 2. The top ten shareholders as of December 31, 2004:

No. Name Change in 2004 (+, -)

Shares at the end of 2004

Proportion of total shares（%）

Share type

1 Jiangling Motors Company (Group) (‘JMCG’)

0 354,176,000 41.03 State-owned legal-person shares

2 Ford Motor Company (‘Ford’) 0 258,642,800 29.96 Circulation B shares

3 Shanghai Automotive Co., Ltd. 0 25,970,000 3.01 Domestic legal-person shares

4 China Baoan Group Co., Ltd. 0 12,000,000 1.39 Domestic legal-person shares

5 DEUTSCHE BANK AG LONDON

4,408,177 4,669,977 0.54 Circulation B shares

6 Guangdong Machinery & Electronic Company

0 1,200,000 0.14 Domestic legal-person shares

7 Shenzhen Airport Terminal Building Co., Ltd.

0 1,200,000 0.14 Domestic legal-person shares

8 Tianxi Development Co., Ltd. 186,500 1,038,800 0.12 Circulation B shares

9 United Securities Limited Liability Company

867,621 867,621 0.10 Circulation A shares

10 Hanbo Securities Investment Fund

862,332 862,332 0.10 Circulation A shares

Notes: i. JMC legal-person shares of 12 million held by China Baoan Group Co, Ltd were frozen on

collateralization. All of the 12 million shares were frozen due to judicial proceeding. ii. There is no association among the shareholders who respectively hold more than 5% of JMC’s

total shares. iii. JMCG holds the shares on behalf of the state; Ford is a foreign-investment shareholder.

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4. The top ten circulation-share shareholders as of December 31, 2004: No. Name Shares at the

end of 2003

Proportion of total shares （%）

Share Type

1 Ford Motor Company 258,642,800 29.96 B share2 DEUTSCHE BANK AG LONDON 4,669,977 0.54 B share3 Tianxi Development Co., Ltd. 1,038,800 0.12 B share4 United Securities Limited Liability

Company 867,621 0.10 A share

5 Hanbo Securities Investment Fund 862,332 0.10 A share6 Boshi Yufu Securities Investment

Fund

791,126 0.09 A share

7 Liu Xiaodong 604,400 0.07 B share8 Jinding Securities Investment Fund 599,957 0.07 A share9 HSBC BROKING SECURITIES

(ASIA) LIMITED-CLIENTS A/C 590,997 0.07 B share

10 Jingye Securities Investment Fund 500,000 0.06 A shareNote: There was no association relationships among the top ten circulation-share shareholders, and nor among the top ten circulation-share shareholders and the top ten shareholders per the public information known by the Company. 3. Controlling Shareholders The controlling shareholders of JMC are JMCG and Ford, and there is no change in respect of the controlling shareholders in 2004. JMCG, a wholly state-owned enterprise founded on July 27, 1991, is subordinate to the State-owned Assets Administration Bureau of Nanchang. Its registered capital is RMB 420.85 million, and its legal representative is Mr. Wang Xigao. Main scope of business: manufacturing of automobiles, engines, chassis, derivative vehicles and automotive components and parts, automotive quality testing, sales of self-produced products, as well as related after-sales services. Ford, founded in 1903, is a US-based listed company. Its registered capital is US$ 1.222 billion. Chairman & CEO: William Clay Ford, Jr. Main scope of business: design, manufacturing, assembly and sales of cars, trucks, parts and components, financing, leasing of vehicles and equipment, and insurance business.

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Ownership and control relations between the Company and the effective controlling parties is shown as follows: III. Trading of JMC’s share

1. Jiangling A shares

Year First transaction price (RMB)

Highest price of the year

(date)

Lowest price of the year (date)

Closing price at the year end

(RMB)

Total transaction

days

Total volume (million shares)

Total amount (RMB million)

2002 6.50 10.80(06/28) 5.66(01/18) 7.40 236 6.98 60.662003 7.4 14.28(05/26) 7.16(01/03) 10.43 240 7.10 79.082004 10.40 12.47(02/18) 4.92(10/26) 5.18 236 7.93 61.68

2. Jiangling B shares

Year First transaction price (HK$)

Highest price of the year

(date)

Lowest price of the year (date)

Closing price at the year end

(HK$)

Total transaction

days

Total volume (million shares)

Total amount (HK$ million)

2002 3.61 4.95(07/08) 2.80(01/14) 3.56 236 160.49 6.142003 3.55 6.95(11/04) 3.51(01/02) 6.65 239 325.10 18.012004 6.60 7.15(03/10) 2.84(11/02) 2.89 236 162.94 8.33

Chapter IV Directors, Supervisors, Senior Management and Employees

I. Directors, Supervisors and Senior Management

29.96% 41.03%

100%

Nanchang Municipal Government

Jiangling Motors Company (Group)

Jiangling Motors Co., Ltd.

Ford Motor Company

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1. Basic Information Position Name Gender Age Term of office Shares at

the end of Year 2004

Share change in Year 2004

Cause of share change

Directors： Chairman Wang Xigao Male 55 2004.5～2005.6 0 0Vice Chairman Mei Wei Cheng Male 55 2002.6～2005.6 0 0Director Zhou Ming Male 43 2003.9～2005.6 0 0Director Howard Welsh Male 47 2004.12～2005.6 0 0Director Lu Shuifang Male 51 2002.6～2005.6 0 0

Director & SEVP Gordon L. Spaulding Male 56 2002.6～2005.6 0 0

Independent Director Xu Wenguang Male 53 2003.9～2005.6 0 0Independent Director Pan Yuexin Male 47 2002.6～2005.6 0 0Independent Director Lok Kim Chai Male 58 2003.9～2005.6 0 0Supervisors： Chief supervisor Wu Yong Male 55 2002.6～2005.6 4,860 0Supervisor Alvin Qing Liu Male 48 2002.6～2005.6 0 0Supervisor Zhu Yi Male 35 2002.6～2005.6 0 0Supervisor Zhang Jianguo Male 48 2002.6～2005.6 0 0Supervisor Jin Wenhui Male 38 2002.6～2005.6 0 0Senior Management: President York Chen Male 53 2005.1～2005.6 0 0EVP Tu Hongfeng Male 57 2005.1～2005.6 0 0

EVP Xiong Chunying Female 41 2002.6～2005.6 1,200 1,200Acquired from stock market

EVP Liu Nianfeng Female 43 2002.6～2005.6 0 0CFO Manto Wong Male 42 2002.6～2005.6 0 0VP & Board Secretary Wan Hong Male 44 2002.6～2005.6 0 0VP Zhong Wanli Male 42 2005.3～2005.6 0 0VP Zhou Yazhuo Male 42 2002.6～2005.6 0 0VP Kevin Whipp Male 38 2002.6～2005.6 0 0

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2. Positions at the shareholder entities held by the JMC directors and the supervisors: Name Shareholder

entity Title Term of

office Compensation paid by shareholder entity (Y/N)

Wang Xigao JMCG Chairman 2003.9— Y Mei Wei Cheng Ford Vice President 1999.1—- Y Zhou Ming JMCG Board member and a

Deputy General Manager

2003.6— Y

Lu Shuifang JMCG Board member 1999.12— N Gordon Spaulding Ford Senior Manager 2005.3— Y Wu Yong JMCG Board member 1999.12— Y Zhu Yi JMCG Chief of JMCG Assets

& Finance Department 2000.3—

Y

3. Particulars about main working experience of directors, supervisors and senior management Directors: Mr. Wang Xigao, born in 1950, senior engineer equivalent to professor, is the Chairman of JMCG and holds a Bachelor’s Degree in Thermodynamics from Tsinghua University, and a Bachelor’s Degree in Economic Management from Fudan University. Mr. Wang Xigao held various positions including Deputy Manager of Jiangxi Boiler Plant, Vice-Chairman, General Manager & Chairman of Jiangxi Boiler & Petroleum Machining Joint Company, Ltd., and Vice-Chairman of JMCG. Since May 2004, Mr. Wang Xigao took the post of the chairman of JMC.

Mr. Mei Wei Cheng, born in 1950, is a Vice President of Ford and the Chairman & CEO of Ford Motor (China), Ltd., and holds a Bachelor’s Degree in industrial engineering/operations research from Cornell University. He has MBA Degree from Rutgers University and is a graduate of Dartmouth’s Amos Tuck Executive Program and MIT’s Program for Senior Executives. Mr. Mei Wei Cheng held various positions including Managing Director of AT&T International (Taiwan), Managing Director of Sales for AT&T Asia Pacific Region, Director of AT&T Product Management, Director of AT&T International Sales Operations, Vice President of AT&T Business Development and President of AT&T China, Chairman and CEO of General Electric (China) Ltd., Vice President of General Electric Corporation and Regional Executive and President of General Electric Appliance – Asia. Since June 1999, Mr. Mei Wei Cheng took the post of Vice Chairman of JMC.

Mr. Zhou Ming, born in 1962, is an Assistant Mayor of Nanchang Municipal People’s Government, as well as a Director and Vice General Manager of JMCG. He holds a Bachelor’s Degree in Welding from Northwest Technology University, a Master’s Degree

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in Dynamic Flow and a Doctor’s Degree in Aviation Engine from Beijing Aviation University, and a Post-doctor’s Degree in Dynamic Engineering and Control from Tsinghua University. Mr. Zhou Ming held various positions including associate professor of Tsinghua University, Deputy Director of Nanchang Economic & Trade Commission, Assistant Mayor of Nanchang Municipal People’s Government and Director of Nanchang Foreign Economic Relations & Trade Commission. Mr. Zhou Ming has been a Director of JMC since September 2003. Mr. Howard Welsh, born in 1957, is the Vice President & CFO of Ford Motor (China), Ltd. and holds a Bachelor’s Degree in Engineering from Pennsylvania State University and a MBA from University of Pittsburgh. Mr. Howard Welsh held various positions including Asia-Pacific Financial Analysis Supervisor and Latin-America Financial Analysis Supervisor of Ford, Retail Marketing Program Analysis Section Supervisor of Sales Operations Controller’s Office of Ford, Finance & Business Planning Director of Ford of Japan, Financial Planning and Analysis Manager of the Corporate Controller’s Office of Ford, Northern America Controller of Ford Customer Service Division, and Northern America Business Strategy Manager of Ford. Mr. Howard Welsh was appointed as a Director of JMC on December 2004. Mr. Lu Shuifang, born in 1954, senior engineer, is a Director of JMCG and holds a Master’s Degree in Engineering from Huazhong University of Science and Technology. Mr. Lu Shuifang held various positions including Chief of paintshop, Assistant to Plant Manager, Deputy Plant Manager of Jiangxi Automobile Factory, Vice General Manager of JMCG & Manager of JMCG Industrial Company, and Vice General Manager, Vice President, Executive Vice President, President, Director of JMC. Mr. Lu Shuifang was a Director of JMC in 1993 and 1994, and has been a Director of JMC since June 2001. Mr. Gordon Spaulding, born in 1949, is senior magager of Ford at present and holds a MBA from the University of Detroit, an Undergraduate Degree from Lawrence Technology University in Industrial and Business Management and a Degree in Technical Design from Ferris State University. He held various management positions in North American Truck, Finance Staff (both international and North America), Ford Credit, Manufacturing (Casting and Engine), Treasury (both international and North America) of Ford, including the Financial Controller and Systems Director of Lima Engine Plant, Treasure of AutoEuropa (Portugal Joint Venture with VW and Ford). Since 1995, he held positions of CFO, Executive Vice President and Senior Executive Vice President of JMC. Mr. Gordon Spaulding took the post of director since July 2000. Mr. Xu Wenguang, born in 1952, graduated from AnHui University, is the Director, General Accountant and Vice General Manager of Changhe Aircraft Company (Group). Mr. Xu Wenguang held various positions including Deputy Director of Finance Department of Changhe Aircraft Company (Group), and General Accountant of Changhe Aircraft Company (Group). Mr. Xu Wenguang has been an Independent Director of JMC since September 2003. Mr. Pan Yuexin, born in 1958, lawyer, is a Vice General Manager of Sino-Chem International Co., Ltd. and is a graduate of Chinese Academy of Social Sciences in

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Economic Laws. Mr. Pan Yuexin held various positions including a lawyer of Lawyer Affairs Centre of Ministry of Justice, director of Hainan Province branch and Shanghai branch of Junhe Law Firm, a partner of Junhe Law Firm, General Secretary of Education Committee of Chinese Lawyer Association, Independent Director of the second Board of Directors of Sino-Chem International Co., Ltd. Mr. Pan Yuexin has been an Independent Director of JMC since June 2002. Mr. Lok Kim Chai, born in 1947, is a chartered accountant and cost & management accountant certificated by the Institute of Chartered Accountants of New Zealand and chartered accountant certificated by Malaysian Institute of Accountants. Mr. Lok Kim Chai held various positions including Senior Manager for Financial analysis/Project, Manager for Branch Operation, Assistant Company Secretary and Senior Manager in Malaysia subsidiary of a Fortune 500 USA company, and Regional Manager for information technology in Asia Region of the Company, the vice chairman & vice general management of China subsidiary of the Company. Mr. Lok Kim Chai has been an Independent Director of JMC since September 2003. Supervisor: Mr. Wu Yong, born in 1951, senior counselor for politics work, is a Director of JMCG and holds a Bachelor’s Degree in Business Management. Mr. Wu Yong held various positions including Vice Secretary of the Party Committee of Jiangxi Automobile Factory, the Director, Vice Secretary of the Party Committee, Secretary of discipline inspection committee of the Communist Party, the Chairman of the Labor Union of JMCG. Mr. Wu Yong has been the Chief Supervisor of JMC since 1993. Mr. Alvin Qing Liu, born in 1957, is a Vice President of Ford Motor (China), Ltd. and has a Jurisprudence Doctor Degree and a Master Degree in International Economics from Marquette University, U.S.A. He is a member of American Bar Association and admitted to practice in the U.S. Federal Court for the Eastern District of Wisconsin. Mr. Liu was a practicing attorney at Ruder, Ware and Michler Law Firm, U.S.A., counsel of Asia Pacific Region, Chrysler Corporation, U.S.A., counsel of Mergers and Acquisitions Group and Northeast Asia Operations, Daimler-Chrysler A.G., Germany, and an International Counsel in the Office of General Counsel, Ford Motor Company. Mr. Alvin Qing Liu has been a Supervisor of JMC since June 2002. Mr. Zhu Yi, born in 1970, accountant, is the Chief of JMCG Asset & Finance Department and holds a College Degree. Mr. Zhu Yi held various positions including Deputy Chief of JMC Finance Department, Vice Manager of Jiangling Auto Maintenance Service Limited, Deputy Chief of JMCG Asset & Finance Department. Mr. Zhu Yi has been a Supervisor of JMC since June 2002. Mr. Zhang Jianguo, born in 1957, senior engineer, is the Chief of Purchasing Centre of JMC and holds a Bachelor’s Degree in Casting. He held various positions including Deputy Manager of Framing Plant of JMC, Deputy Manager, Manager of Jiangling Casting Plant of JMC. Mr. Zhang Jianguo has been a Supervisor of JMC since June 2002.

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Mr. Jin Wenhui, born in 1967, senior engineer, is the Chief of Manufacturing Department of JMC and holds a Bachelor’s Degree in Mechanical Manufacture from Huazhong University of Science and Technology. He held various positions including an engineer of Automotive Bodywork Engineering Office, an engineer of Jiangxi Automotive Technology Development Office of Jiangxi Automotive Manufacturing Factory, Deputy Chief and Chief of Die Centre of JMC. Mr. Jin Wenhui held the post of supervisor of JMC since June 2002. Senior management: Mr. York Chen, born in 1952, is the President of JMC and holds mechanical engineering Degree from National Cheng Kung University of China Taiwan. Mr. York Chen held various positions including Manager of the Engine and Casting Workshop of Ford Lio Ho Motor Company, Manager of the Welding, Painting and Assembling Plant of Ford Lio Ho Motor Company, Executive Vice President of Volkswagen Taiwan, Chief Technical Officer of Ford Lio Ho Motor Company, and Chief Marketing & Sales Officer of Ford Lio Ho Motor Company, a Vice President of Ford (China) in charge of business operating & planning. Mr. Tu Hongfeng, born in 1948, senior engineer, is an Executive Vice President of JMC, General Manger of Jiangling ISUZU Motors Company, Ltd. (JMC’s subsidiary company), and holds a College Degree. Mr. Tu Hongfeng held various positions including Vice General Manager of JMCG, the Director, Vice President & Chief of Product Development Office of JMC, Vice General Manager and General Manager of Jiangling-Isuzu Motors Company, Ltd. Ms. Xiong Chunying, born in 1964, senior engineer, graduated from Jiangsu Engineering College, is an Executive Vice President of JMC and holds an Bachelor’s Degree in Automotive Engineering. Mrs. Xiong held various positions including Assistant to President, Chief of Quality Management Department, Vice President of JMC. Ms. Liu Nianfeng, born in 1961, graduated from Medical Equipment Department, ZheJiang University, is an Executive Vice President of JMC and holds a Bachelor’s Degree. Ms. Liu held various positions including Assistant to Specialist of Ford Office (JMC), Assistant to Plant Manager and Deputy Plant Manager of JMC Engineering Plant in JMC, Plant Manager of Jiangling Framing Plant in JMC. Mr. Manto Wong, born in 1963, is the Chief Financial Officer of JMC and holds a Bachelor of Science Degree in Computer Engineering and MBA from The University of Michigan in USA. Mr. Manto Wong held various positions including Finance Supervisor of Ford/Nissan Association Programs of Ford Motor Co., Business Development Specialist of Ford International Automotive Operations, Financial Planning Manager of Ford Motor (China) Ltd., International Financing Manager of Ford’s Global Treasury Operation, and Market Analysis Manager of Ford North American Marketing and Sales.

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Mr. Wan Hong, born in 1961, engineer, is a Vice President and Board Secretary of JMC and holds a College Degree in Management Engineering. Mr. Wan Hong held various positions including Deputy Chief of JMC Joint Venture Office, Deputy Chief of JMC Joint Venture Department, Chief of Human Resource and Enterprise Management of JMC, Assistant to President of JMC. Mr. Zhong Wanli, born in 1963, holds a Bachelor’s Degree from Nanchang Aeronautical Institute and a Master’s Degree from Jiangxi Finance and Economic University and is a Vice President of JMC. Mr. Zhong Wanli held various positions including Deputy Chief of Purchasing Centre, Assistant to President & Chief of Purchasing Centre of JMC, Vice President of JMC, President of Zhongtian Hi-tech Special Vehicle Co., Ltd., and Deputy Director of China Sourcing Office of Ford (China) Mr. Zhou Yazhuo, born in 1963, senior engineer, graduated from the Central China Engineering College, is a Vice President of JMC and holds a Bachelor’s Degree in Forging. Mr. Zhou Yazhuo held various positions including Plant Manager of Stamping Workshop, Chief of Technology Department, Chief of Die Centre, Assistant to President and Chief of Manufacturing Department of JMC. Mr. Kevin Whipp, born in 1967, graduated from Manufacturing Engineering Major of UK Brunel University, and gained Degree of engineering bachelor. He held positions such as engineering manager/ area manager final assembly, area manager paint shop, area manager Trim & Final Assembly Southampton Assembly in Ford.

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4. Particulars about positions and concurrent positions in other entities other than shareholder entities:

Name/Title in the Company Entity Relationship with the Company Title

Jiangxi Jiangling Holdings Limited

JMCG holding 50% equity Vice Chairman

Wang Xigao/Chairman Jiangling-Isuzu Motors Company, Ltd. Shareholding Subsidiary Chairman

Ford Motor (China) Ltd. Ford wholly subsidiary Chairman & CEO Mei Wei Cheng/Vice Chairman

Changan-Ford Automobile Company, Ltd.

Ford holding 50% equity Vice Chairman

Howard Welsh Ford Motor (China) Ltd. Ford wholly subsidiary Vice President & CFO

Lu Shuifang/Director Jiangxi Jiangling Holdings Limited

JMCG holding 50% equity Director & President

Xu Wenguang/Independent director

Changhe Aircraft Company (Group) No relationship

Director, General Accountant and Vice General Manager

Pan Yuexin/Independent director

Sino-Chem. International (holdings) Co., Ltd.

No relationship Vice General Manger

Wu Yong/Supervisor Jiangxi Jiangling Holdings Limited

JMCG holding 50% equity

Chairman of the Supervisory Committee

Alvin Qing Liu Ford Motor (China) Ltd. Ford wholly subsidiary Vice President

Zhu Yi/Supervisor Jiangxi Jiangling Holdings Limited

JMCG holding 50% equity Director

York Chen/President Jiangling-Isuzu Motors Company, Ltd. Shareholding Subsidiary Director

Tu Hongfeng/EVP Jiangling-Isuzu Motors Company, Ltd. Shareholding Subsidiary Director &

General Manager

Manto Wong/CFO Jiangling-Isuzu Motors Company, Ltd. Shareholding Subsidiary Director

5. Annual Compensation The directors and the supervisors who did not concurrently hold other management positions in JMC were not paid by JMC. Directors Wang Xigao, Zhou Ming, Supervisors Wu Yong and Zhu Yi were paid by JMCG. Directors Mei Wei Cheng, Howard Welsh and Supervisor Alvin Qing Liu were paid by Ford. (1) The compensation for the Chinese-side senior management, according to the approval from the Board of Directors, consists of two parts: base salary and position subsidy. JMC has six Chinese-side senior management persons. Their total 2004 annual compensation was about RMB 1.7 million. The total annual compensation for the top three persons of the highest compensation was about RMB 1 million. One person was paid between RMB 350 thousand and 400 thousand, two persons between RMB 250 thousand and 350 thousand, three persons between RMB 200 thousand and 250 thousand. Two employee-representative supervisors were paid about RMB 100 thousand per person.

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(2) JMC pays to Ford the annual compensation for Ford-seconded senior management personnel in line with the Personnel Agreement signed between Ford and JMC, and Ford pays the senior management and other foreign personnel seconded to JMC. In 2004, JMC paid US$ 1,545 thousand, including salary, insurance, and other personnel-related expense, to Ford for six Ford secondees. The six foreign secondees include three (3) senior management personnel appointed by the Board of Directors. (3) Upon the approval of JMC 2003 Annual Shareholder’s Meeting, the annual compensation for the JMC independent directors is RMB 80 thousand per person, and JMC bears their travel-related expenses related to JMC’s business. 6. Changes of Directors, Supervisors and Senior Management Director Changes: Mr. Jiang Linsheng’s resignation from director position due to work reason was approved and Mr. Wang Xigao was elected as a director of the Company at the 2003 annual shareholders’ meeting of the Company on May 20, 2004. Mr. Dave Schoch’s resignation from director position due to work reason was approved and Mr. Howard Welsh was elected as a director of the Company at the 2004 special shareholders’ meeting on December 25, 2004. Senior Management changes: The Board of Directors agreed to Mr. Xiong Zhongping’s resignation from Board Secretary position and appointed Mr. Wan Hong as the Board Secretary of the Company on September 30, 2004. Subsequent Event: The Board of Directors agreed to Mr. Lu Shuifang’s resignation from the President position due to work reason and Mr. Eric Hoile’s resignation from Vice President position. And the Board of Directors appointed Mr. York Chen as the President and appointed Mr. Tu Hongfeng as an Executive Vice President on January 19, 2005. The Board of Directors agreed to Mr. Gordon Spaulding's resignation from the Senior Executive Vice President position and appointed Mr. Zhong Wanli as a Vice President of the Company on March 23, 2005. II. Employees At the end of 2004, JMC had a total of 6,781 employees, of which 4,879 were production workers, 230 sales personnel, 812 technical personnel, 95 finance personnel, 765 administrative staff. The employees with polytechnic school degrees or above accounted for 24% of the total. There were 563 persons with junior technical titles, 390 with intermediate technical titles and 110 with senior technical titles, altogether accounting for 16% of the total. There were 1,227 early-retired employees and 68 lay-offs. JMC had a total of 1,855 retired employees.

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Chapter V Corporate Governance

1. Status of the Corporate Governance in JMC The Company continuously improved its corporate governance structure in compliance with Company law, Governance Rules for Listed Companies, Guidelines on Establishing Independent Director System in Listed Companies, the Rules for Listing Shares in Shenzhen Stock Exchange as well as the relevant laws and regulations. A corporate governance structure which meets the requirements for modern enterprise has been established in the Company. 2. Status of Independent Directors in Execution of Duty JMC has appointed three independent directors so far. The independent directors exercised their fiduciary duties regarding the routine work and major decision-making of the Board of Directors. They studied every proposal reviewed by the Board of Directors thoroughly and raised their opinions, inquired about the major events which required the opinions from the independent directors and issued their written opinions, and actively engaged in the affairs of Compensation Committee and Audit Committee in the reporting period, to protect the interests of the Company and all shareholders. I. Particulars about independent directors’ attendance to the Board meeting:

Name Times that should attend the Board

meeting

Times of presence in

person

Times of commissioned

presence

Time of absence

Xu Wenguang 12 11 1 0 Pan Yuexin 12 12 0 0 Lok Kim Chai 12 12 0 0

II. Dissidence for JMC related matters The independent directors of the Company did not raise objection on any proposals and issues of the Company reviewed at the Board meetings in the reporting period. 3. Separation between JMC and the Controlling Shareholders in respect of Personnel, Assets and Finance, and Independence concerning the Organization and the Business: (1). In respect of personnel matters, the positions of chairman president are held by different individuals, JMC’s senior management do not hold positions other than director positions with its controlling shareholders; JMC senior management personnel get paid from JMC; the labor, personnel matters and salary management of JMC are completely independent. (2) In respect of assets, JMC assets are complete. The assets utilized by JMC, including production system, supporting production system and peripheral facilities, and non-patent technology, are owned and/or controlled by JMC. (3) In respect of finance, JMC has independent finance department and independent

19

accounting system, and has a uniform and independent accounting system and financial control system for its branches and subsidiaries. JMC has its own bank accounts, and there is no bank account jointly owned by JMC and its controlling shareholders. JMC pays taxes independently. (4). In respect of organization, JMC’s organization is independent, complete and scientifically established with good operating mechanism and efficiency. The establishment and the operation of JMC’s corporate governance are strictly carried out per the Articles of Association of JMC. The production and administrative management are independent from the controlling shareholders. JMC has set up the organization structure that meets the need for its development. (5). In respect of business, JMC has independent purchasing, production and sales systems. The purchasing, production and sales of main materials and products are carried out through its own purchasing, production & sales functions. There are related party transactions with controlling shareholders only in respect of component purchasing, e.g. rear axle, transmission and some interior trims, etc. JMC is independent from the controlling shareholders in respect of the business, and has independent & complete business and self-sufficient operation capability. The controlling shareholders basically did not engage in production or sales of the same products to compete with JMC. 4. Compensation & Incentive Mechanism for Senior Management in the Reporting Period The Board of Directors reviewed and approved 2004 Senior Management One-time Bonus Plan on January 19, 2005. The bonus totaled RMB 1.2 million and was to be paid in three installments, 70% of which was paid immediately after the approval of the Board of Directors, 15% of which will be paid at the end of 2005, and the remain 15% of which will be paid at the end of 2006. This plan was applicable only to the Chinese-side senior management in 2004. At the meeting of the Compensation Committee on January 19, 2005, the Compensation Committee of the Board of Directors agreed on a detailed timetable for establishing a complete compensation & evaluation mechanism for senior management, which will be implemented in 2005.

Chapter VI Shareholders’ Meeting I. Annual Shareholders’ Meeting 1. Notification, Convening and Holding of the Shareholders’ Meeting JMC published the Announcement on Holding 2003 Annual Shareholders’ Meeting in China Securities, Securities Times and Hong Kong Commercial Daily on April 17, 2004. The 2003 annual shareholders’ meeting of JMC was held in the conference room on the fourth floor of the Administration Building of JMC on May 20, 2004. A total of 11 shareholders and proxies attended the meeting, representing 625,653,105 JMC shares that accounted for 73% of the total share capital of JMC. At this meeting, there were 10

20

shareholders holding 367,010,305 A shares in total that accounted for 42.52% of the total share capital; and there were 1 shareholder holding 258,642,800 B shares that accounted for 29.96% of the total share capital. 2. Resolutions passed at the JMC 2003 annual shareholders’ meeting approved the follows: 1) approved the 2003 Work Report of the Board of Directors; 2) approved the 2003 Work Report of the Supervisory Committee; 3) approved the 2003 Financial Report; 4) approved the Proposal on Profit Distribution for Year 2003; 5) approved the Proposal on Director Changes; 6) approved the Proposal on Adjustment to the Compensation for Independent Directors;

and 7) approved Proposed Amendment to the Articles of Association. The public announcement on the resolutions of this Shareholders’ Meeting was published in China Securities, Securities Times and Hong Kong Commercial Daily on May 21, 2004. II. Special Shareholders’ Meeting 1. Notification, Convening and Holding of the Shareholders’ Meeting JMC published the Announcement on Holding 2004 Special Shareholders’ Meeting in China Securities, Securities Times and Hong Kong Commercial Daily on November 23, 2004. The 2004 special shareholders’ meeting of JMC was held in the conference centre on the second floor of the Administration Building of JMC on December 25, 2004. A total of 3 shareholders and proxies attended the meeting, representing 613,824,975 JMC shares that accounted for 71.11% of the total share capital of JMC. At this meeting, there was 1 shareholder holding 354,176,000 A shares that accounted for 41.03% of the total share capital; and there were 2 shareholders holding 259,648,975 B shares in total that accounted for 30.08% of total share capital and 75.45% of the total B shares. No shareholder holding circulation A shares attended this meeting. 2. Resolutions passed at the JMC 2004 special shareholders’ meeting are as follows: 1) approved the Proposal on Director Election; and 2) approved the Proposal on Permitting JMC to Settle Payments with the Dealers Through JMC Account in JMCG Finance Company. The public announcement on the resolutions of the Special Shareholders’ Meeting was published in China Securities, Securities Times and Hong Kong Commercial Daily on December 28, 2004. III. Election & Changes of the Directors and the Supervisors

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Please refer to the above paragraphs for details, namely, “Changes of Directors, Supervisors and Senior Management”.

Chapter VII Report of the Board of Directors I. Management Discussion and Analysis 1. Operating Results JMC’s core business is production and sales of light vehicles and related components. Its major products include JMC series light truck and pickup, and Transit series commercial bus. The Company also produces engine, casting and other components. In 2004, JMC sales volume reached a record of 67,203 units including 31,601 light trucks and microbuses, 22,798 pickups and 12,804 Transit commercial vehicles. Total sales volume was up 15% from over a year ago. Total production volume was 66,176 units, including 31,914 light trucks and microbuses, 21,368 pickups and SUV, and 12,894 Transits. JMC’s sales increase was primarily due to light trucks price reduction and new model introduction, which made light truck sales volume increase by 39% compared with last year. Transit sales increased by 11%, owning to the price reductions of selected models, launch of New Space Edition, the Logistic Model, and aggressive marketing actions. In 2004, the Company achieved a market share of about 1.3% of the Chinese automotive market, about the same as 2003. JMC light trucks (including pickup) accounted for 7% of the light truck market, about the same as a year ago. Transit achieved about 10% of the light bus market (excluding MPV, SUV, chassis cab and quasi-car products), about 2 percentage points higher than last year. (Data source for above analysis: China Association of Automobile Manufacturers and the Company sales records)

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The Detailed Table of Revenue & Cost of Goods Sold from Core Business.

Unit: RMB’000

Product Turnover Cost in core

business Gross margin

Year-on-year changes of

turnover (%)

Year-on-year changes of

costs in core business (%)

Year-on-year changes of

gross margin

(point)

I. Vehicle 5,202,635 4,032,254 22.5% 7.0% 12.8% -4.0

II. Components 568,041 511,591 9.9% 145.3% 179.4% -11.0

Total 5,770,676 4,543,845 21.3% 13.3% 20.9% -5.0

Including: Related party transaction

523,338 441,963 15.6% 168.3% 175.1% -2.1

Particulars about main business classified according to region:

Unit: RMB’000

Region Turnover North-east China 260,936

North China 585,800East China 2,942,500

South China 1,129,185Central China 316,400

North-west China 216,771South-west China 319,084

2. Operating Results of Subsidiaries

Name of

Subsidiaries Business

Main

Products

Registered

Capital

Assets

(RMB’000)

Turnover

(RMB’000)

Operating

Profit

(RMB’000)

Net Profit

(RMB’000)

Jiangling-Isuzu Motors Company, Ltd.

Manufacture

N series Light Truck, TF series Pickup

$30

million 1,125,567 3,811,262 147,164 123,888

3. Main Suppliers and Customers The total amount of the purchase from the top 5 suppliers was RMB 1,163 million, accounting for 27% of JMC’s total annual purchasing amount. The total sale amount to the top 5 customers was RMB 1,196 million, accounting for 21% of JMC’s total turnover.

4. Operational Challenges and Resolutions

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In 2004, the Company faced major challenges in the market place, intensifying cost pressures, and slowing pace of growth. In the market place, the Company continued to experience market share pressure from lower price competitors in all its segments. Lower than expected industry volumes resulted from macroeconomic adjustments further intensified price wars in all the markets JMC participated. In response, we took the following actions:

- Transit: Lowered prices for the Transit Short Wheel Base models in November of 2003. And again, lowered prices for all Transit model in January 2005. Introduced New Space Edition and Logistic Model during 2004.

- Light Cargo Truck: Lowered prices in February of 2004 for N-series. Introduced new KaiYun model.

- Pickup: Lowered prices in October 2004.

Both Transit and Light Cargo gained market shares in 2004. In the pickup segment, price reductions in the passenger car segment and increasing popularity of low cost SUV continued to erode sales of mid to high-end models where JMC Pickup is positioned. Our price reduction action in October has allowed us to regain pickup sales momentum and better position the product for 2005. In the area of cost management, the Company had to deal with escalating marketing expenses to compete for market shares, continuing raw material price increases, and costs incurred to meet regulatory requirements. To maintain acceptable profit margins, the Company is placing high priority in cost management by forming a dedicated team to lead vigorous cost reduction and waste elimination activities for the entire enterprise. We are also moving more and more upstream into the product development process to reduce costs during design stage, in addition to tightening cost control on models currently in production and daily operating expenses. Finally, to address the issue of continuing growth, the Company's management is focusing on two areas: (1) leveraging existing product platforms to generate new revenue stream, and (2) introducing all new products. We introduced an all new Baowei SUV in First Quarter 2005. We have also kicked off a major program to develop an all new commercial vehicle (long lead funding was approved by the Board in January 2005). Furthermore, the management is working closely with our strategic partner to identify additional products which have high market potentials and generate acceptable returns on investment. 5. Investment in the reporting period (1) In 2004, JMC did not raise equity funding, nor did it use equity funding raised in previous years. (2) Major projects funded by non-raised fund:

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Project Name Total Investment

Estimate (RMB Mils)

Progress (incurred)

(RMB Mils)

Planned Job#1 Date

Euro III Project (Engine & Vehicle) 120.0 44.5 Mar. 07

A3 Press Line 90.0 81.2 Apr. 05 Euro II Project (Engine & Vehicle) 86.8 72.6 Nov. 05

J116 Light Truck 60.3 Completed J117 Project 33.7 30.7 Apr.05 Transit Noise Reduction (Phase II) 17.8 8.6 Dec. 05

1000T Press 8.3 6.0 Apr. 05 Trial-manufacture Workshop 3.9 2.3 Jul. 05

6. Financial Results Revenue in 2004 was RMB 5,771 million, up 13% from last year. This increase reflected higher vehicle sales volume and growth in automotive component business, partially offset by price reduction and unfavorable mix. Under International Financial Reporting Standards, net profit was RMB 415 million, up almost 9% from last year. Higher profit from volume increase, cost reductions and lower tax expenses were partially offset by price reduction, unfavorable mix and cost increase from steel price and regulatory compliance. Cash flow from operations was positive RMB 750 million, reflecting profitability and operating-related changes. Cash flow from investing activities was negative RMB 77 million, reflecting primarily spending for capital goods such as facilities, equipment and tooling. Financing cash flow was negative RMB 296 million, reflecting mainly bank loan pay down and dividends payment for 2003. At the end of 2004, the Company had total of RMB 1,361 million cash and cash equivalents, up RMB 378 million from the end of 2003. The balance of bank borrowing was RMB 211 million, down RMB 145 million from the end of 2003 (reduced 41%). Total liabilities as percent of asset was reduced from 43% to 41%, compared with that of December 31, 2003. Total asset was RMB 4,179 million, up 9% from RMB 3,821 million at year-end 2003, reflecting mainly higher cash balance. Total liabilities were RMB 1,730 million, up 4% from the end of last year, reflecting mainly higher account payable from higher production volume, partially offset by bank debt reduction. Shareholder equity was RMB 2,449 million at December 31, 2004, up RMB 286 million

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from year-end 2003. This increase was due to net profit earned in the reporting period. Dividends payment of 2003 year partially offset equity increase. 7. 2005 Year Plan The Company is projecting revenue in the range of RMB 6,000 to 6,500 million for 2005. Intensifying competition is expected to continue into 2005 as the market slows down in response to macro economic adjustments from the Government. Further, product cost and investment are projected to be higher to meet regulatory requirements such as emission and noise compliance. In 2005, the Company continues to focus on generating cash and profits, and formulation of new product development strategy and plans for future growth. Specific actions include: (1) Accelerate efforts to strengthen our brands through enhancing the Company's

distribution network, including specialty shop expansion and JMC Cares service strategy rollout.

(2) Execute product updates from our existing platforms. (3) Increase cost reduction efforts by focusing on customer value and eliminating wastes

through design optimization. (4) Work with our strategic partner to execute development program for the new

generation commercial vehicle. II. Routine Work of the Board of Directors 1. Board Meetings and Resolutions in 2004 The Board of Directors approved with the written consent of the directors the following resolutions on March 16, 2004: i. approved to eliminate the legal entity status of Jiangling Motors Sales General

Company, wholly owned by JMC, and reorganize it as a branch company (a non-legal entity) of JMC; and

ii. agreed to include Mr. Jiang Linsheng’s resign application from director position in JMC into the agenda of 2003 annual shareholders’ meeting for the Shareholders’ Meeting’s approval, and agreed to hold a by-election for a director in 2003 annual shareholders’ meeting and to include Mr. Wang Xigao’s by-election as the Company’s director into the agenda of 2003 annual shareholders’ meeting..

The Board of Directors passed the following resolutions with the written consent of the directors on April 9, 2004: i. approved 2003 Annual Report of JMC and the extracts from the annual report; and ii. approved the proposal on year 2003 profit distribution plan. The Board of Directors approved with the written consent of the directors the following resolution on April 17, 2004: i. approved the proposed amendments to the Articles of Association of JMC; and ii. approved the notice on holding 2003 Annual Shareholders’ Meeting of JMC. The Board of Directors approved with the written consent of the directors the following

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resolution on April 23, 2004: approved JMC 2004 First Quarter Report. The fifth session of the Fourth Board of Directors was held in the conference center on the second floor of JMC administrative building on May 21, 2004. The following resolutions were passed at the meeting: i. agreed to elect Mr. Wang Xigao as chairman of the Board of Directors and Chairman

of the Strategy Committee; and ii. approved the Transit Pass-by Noise Reduction (Phase II) Program. The Board of Directors approved with the written consent of the directors the following resolution on August 18, 2004: approved JMC 2004 Half-year Report. A special meeting of the Board of Directors was held in the conference center on the second floor of JMC administrative building on September 30, 2004. The following resolutions were passed at the meeting: i. agreed Mr. Xiong Zhongping to resign from the posts of the Board Secretary and the

Secretaries of the Strategy Committee and the Compensation Committee of the Board. The Board approved the appointment of Mr. Wan Hong as the Board Secretary and the Secretaries of the Strategy Committee and the Compensation Committee of the Board; and

ii. agreed to nominate Mr. York Chen and Mr. Manto Wong as candidates for the directors of JMC’s subsidiary – Jiangling-Isuzu Motors Company, Ltd.

The Board of Directors approved with the written consent of the directors the following resolutions on October 23, 2004: approved JMC 2004 Third Quarter Report. The Board of Directors approved with the written consent of the directors the following resolutions on November 2, 2004: approved the proposal for permitting JMC settles trade payment with dealers through JMC account in JMCG Finance Company. The Board of Directors approved with the written consent of the directors the following resolutions on November 17, 2004: i. Because Mr. Dave Schoch put forward resign from director position in the Company

due to duty change, the Board agreed that Mr. Howard Welsh, nominated by Ford Motor Company, is a director candidate; and

ii. approved the Notice on Holding A Special Shareholders’ Meeting of JMC. The Board of Directors approved the Report of Acquiring the Shares by Jiangxi Jiangling Holdings Limited to All Shareholders on December 21, 2004. 2. Board of Directors’ Executing the Resolutions of the Shareholders’ Meeting According to Y2003 profit distribution plan approved by the 2003 Annual Shareholders’ Meeting, the Y2003 dividend distribution plan was published in China Securities, Securities Times and Hong Kong Commercial Daily on June 4, 2004, and it had been put into effect. JMC did not convert capital reserve into share capital in 2004. 3. Proposal on Year 2004 Profit Distribution Plan

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Details on the profit available for appropriation of the Company in 2004 prepared in accordance with Chinese Accounting Standards (‘CAS’) and International Financial Reporting Standard (‘IFRS’) are as follows:

Unit: RMB’000 CAS IFRS

Retained earning at Dec 31, 2003 410,594 315,0292004 profit after tax 386,858 415,134Reserve -64,223 -58,028Allocation of dividend for 2003 -129,482 -129,4822004 profit available for distribution 603,747 542,653

The upper limit of profit available for distribution was based on the lower of the unappropriated profit calculated in accordance with CAS and that calculated in accordance with IFRS. Therefore, the Company’s profit available for distribution in 2004 was RMB 542,653 thousand. The Board approved to submit to the 2005 Annual Shareholders’ Meeting the following proposal on year 2004 profit distribution: (1). to appropriate 10% of the 2004 net profit calculated in accordance with CAS to

statutory surplus reserve; (2). to appropriate 5% of the 2004 net profit calculated in accordance with CAS to statutory

public welfare fund; (3). to appropriate for dividend distribution from the net profit the year, basing on the

Company’s total share capital and a dividend of RMB 0.15 per share; and, (4). the balance of the unappropriated profit will be brought forward to the following

financial year.

Dividend distribution proposal: A cash dividend of RMB1.5 (including tax) will be distributed for every 10 shares held. Based on the total share capital of 863,214,000 shares as at 31 December 2004, total cash dividend distribution amounted to RMB 129,482,100. B share dividend is to be paid in Hong Kong Dollars exchanged from RMB based on the HKD-to-RMB exchange rate published by the People’s Bank of China on the first working day when the profit distribution proposal is approved at JMC’s Shareholders’ Meeting. The Board decided not to transfer capital surplus reserve to share capital at this time. 4. The independent directors’ explanation and independent opinion on the Company’s outside guarantee and the implementation of relevant regulations JMC has no outside guarantee. 5. Others JMC continues to designate China Securities, Securities Times and Hong Kong

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Commercial Daily as the newspapers for information disclosure.

Chapter VIII Report of the Supervisory Committee I. Work of the Supervisory Committee Pursuant to the relevant regulations in the Company Law, Securities Law and JMC Articles of Association as well as the spirit of being responsible to the shareholders, the Supervisory Committee seriously fulfilled its duties stipulated by the laws and regulations and energetically worked to perform its functions fully in 2004. The Chief Supervisor attended all the board meetings as a non-voting attendee, and all the supervisors attended the annual Shareholders’ Meeting. The committee held 2 meetings during the reporting period. The following is the information in regard to the meetings and the subjects at the meetings: 1. The Supervisory Committee reviewed and passed the following proposals with the written consent of the supervisors on April 5, 2004: i. reviewed and passed the 2003 annual work report of the Supervisory Committee; and ii. reviewed and passed 2003 Annual Report of JMC and the extracts from the annual

report. 2. The Supervisory Committee reviewed and passed the following resolutions with the written consent of the supervisors on August 14, 2004: reviewed and passed 2004 Half-year Report of JMC and the extracts from the half-year report. II. Supervisory Committee’s independent opinion on the following matters during the reporting period: 1. JMC’s operation in conformity with laws JMC operated in conformity with the laws and regulations, such as Company Law, Securities Law and the Articles of Association in 2004. The decision-making procedure was standardized and legal, and a relative complete internal control system was established. No behaviors violating laws, regulations and the Articles of Association or harming JMC’s interest by the Directors, President and other senior management in carrying out their duties were found. 2. JMC’s financial status PwC Zhong Tian audited JMC’s 2004 financial statements and issued unqualified audit reports. We believe the reports reflect JMC’s financial status, operating results and asset change objectively and truly. 3. In 2004, JMC’s procedure for asset sale was legal and the prices were reasonable. There were no insider trading and deals or situations harmful to shareholders’ interest or where a leak of JMC’s assets was detected. 4. JMC’s related transactions: the imported component purchasing applied negotiated arm-length prices. The pricing for localized components was determined through the process of inviting public bidding, discussion and business negotiation. The prices were adjusted periodically, were fair and reasonable.

29

Chapter IX Major Events 1. JMC had no major litigation or arbitration issue in 2004.

2. In 2004, JMC did not acquire or sell operation, and there was no merger. 3. Major Related Transactions (1) Related party transactions for purchase of commodities and services A. JMC purchased certain raw materials, auxiliary materials and components from related parties. The ones with annual value over RMB 30 million are listed as follows:

Transaction parties Amount (RMB’000)

As % of total purchases

JMCG 344,656 8.09%Jiangxi Jiangling Special Purpose Vehicle Factory 219,378 5.15%JMCG Interior Trim Factory 151,799 3.57%Nanchang Gear Co., Ltd 144,233 3.39%Jiangling-Lear Interior Trim Factory 124,826 2.93%Ford 95,665 2.25%Jiangxi FuChang Climate System Co. 92,958 2.18%Jiangxi Huaxiang Auto Components Co. 50,772 1.19%JMCG Industrial Company 37,823 0.89%JMCG Variant Vehicle Factory 32,029 0.75% Settlement method: Letter of Credit method for Ford and its designated suppliers; payment on accounts or prepayment for other related parties. Pricing principle: Ford and its designated suppliers applied the negotiated arm-length pricing; the pricing for localized components from related parties were determined through the process of suppliers quote, costing assessment and negotiation between both sides. The prices were adjusted periodically. Necessity and continuity: the purchase of the imported components will immediately stop when the respective localization is achieved, and these components will be substituted by localized ones; some components from other related parties were unique parts for JMC’s Transit series, N series and T series, and other general components were purchased through open bidding.

30

B. The sales of products by JMC to related parties with annual value over RMB 30 million:

Transaction parties Amount (RMB’000)

Ratio to the transactions of the same kind

Jiangxi Jiangling Special Purpose Vehicle Factory 190,355 3.30%Jiangling Import and Export Co., Ltd. 148,285 2.57%Jiangling Land-wind Autos Co., Ltd. 105,525 1.83%JMCG Industrial Company 89,736 1.56%JMCG Interior Trim Factory 68,145 1.18%

Settlement method: cash sales or settlement with bank acceptance draft within the same month. Pricing principle: market price. Necessity and continuity: Jiangling Import and Export Co., Ltd had mature network and human resources in import & export trade. JMC will continue to use its sales network to sell products to overseas markets. JMC will also continue supplying relevant components to Jiangling Land-wind Autos Co., Ltd. for the attractive margin from the supply. C. Management Compensations In 2004, JMC should pay US$ 1.54 million to Ford for its seconded personnel working in JMC in line with the Personnel Agreement and Supplemental Contract to the Personnel Agreement signed by JMC and Ford. D. General Service JMCG bears the middle school and primary school educational fees and retired employees expenses of JMC and its subsidiaries, and provides services such as security, fire control, road maintenance and cable television. The related costs were shared by JMC and its subsidiaries in the agreed percentage based on headcount ratio. In 2004, RMB 8.42 million of the above-mentioned costs was shared by JMC and its subsidiaries according to such ratio. E. Purchasing Agency Jiangling Import & Export Co., Ltd. was the import agent of JMC for acquiring import materials, equipments and technology services with a fixed commission rate of 1.5%. In 2004, JMC paid Jiangling Import & Export Co., Ltd. commission totaling RMB 5 million. (2) There was no related party transaction resulting from the transfer of assets or stake in 2004. (3) Creditor’s rights, liabilities and guarantees between JMC and related parties.

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A. Balance of accounts due to or due from main related parties with value over RMB 30 million:

Item Related parties Amount (RMB mils.)

Ratio to the balance of the

item Accounts and bills payable JMCG 68.21 7.6%

Accounts and bills payable

Jiangling-Lear Interior Trim Factory 41.74 4.6%

Accounts and bills payable Nanchang Gear Co., Ltd 35.43 4.0%

B. Deposit At the end of year 2004, JMC had deposit of RMB 86.78 million in JMCG Finance Co., Ltd. and charged interest according to same period bank deposit interest rate (HK$ at 0.0025%, RMB at 0.72% - 1.44%). JMC received a total of RMB 2.5 milliion in interest from JMCG Financial Co., Ltd. in 2004. C. Guarantee JMCG provided guarantee for parts of JMC’s bank loans, of which the maximum was US$ 2.28 million, or RMB 18.89 million. As of Dec. 31, 2004, JMCG Finance Co. Ltd provided guarantee for JMC’s bank loans of US$ 1.342 million, or RMB 11.11 million. (4) Other major related party transactions in 2004 According to the Joint Development Agreement and the 2nd Amendment Contract to the Joint Development Agreement signed by JMC and Ford, JMC is to pay technology development fee totaling US$ 40 million to Ford. JMC bore the technology development fee of US$ 3.52 million (equal to RMB 29.16 million) in year 2004 at 1.8% of Transit sales revenue. 4. Major Contracts and the Execution (1) There were neither entrustment, contract or lease of assets from other companies, nor entrustment, contract or lease of JMC’s assets to other companies through which profit was generated to exceed 10% of 2004 total profit in the reporting period. (2) JMC had no outside guarantee in the reporting period. (3) JMC did not entrust other people with cash asset management in the reporting period. 5. Neither JMC nor the shareholders holding 5% or above shares disclosed commitments on the designated newspapers or website in 2004. 6. Appointment or Dismissal of Accounting Firms JMC 2002 Annual Shareholders’ Meeting approved to appoint PwC Zhong Tian CPAs as JMC’s year 2002-2006 A & B share auditor. The firm has offered JMC audit service four consecutive years.

32

The compensation paid to the accounting firm: Accountant Firm Year 2004 Out of Pocket Expense

PwC ZhongTian RMB 1 million (Both A & B share)

Included in audit fee.

7. Neither JMC nor its Directors or senior management were punished by regulatory authorities in 2004. 8. Other Major Events (1) A Wholly-owned Subsidiary Elimination The Board of Directors of the Company approved to eliminate the legal entity status of Jiangling Motors Sales General Company, wholly owned by the Company, and reorganize it as a branch company (a non-legal entity) of the Company. Jiangling Motors Sales General Company was eliminated on August 18, 2004. (2) Acquisition from Jiangxi Jiangling Holdings Limited Jiangling Motors Company (Group) (‘JMCG’) and Chongqing Changan Automobile Corporation, Ltd. (‘Changan Automobile’) entered into an agreement as of October 28, 2004 to invest jointly to establish Jiangxi Jiangling Holdings Limited (‘Jiangling Holdings’). Jiangling Holdings was founded on November 1, 2004 and its registered capital was RMB 100 million. Each of JMCG and Changan Automobile used cash of RMB 50 million as contribution and Jiangling Holdings’ legal representative is Mr. Yin Jiaxu. JMCG, Changan Automobile and Jiangling Holdings entered into the Capital Increase and Subscription Agreement as of December 6, 2004, under which JMCG will contribute its shareholding of 354,176,000 State-owned shares of JMC and its some liabilities as capital investment to Jiangling Holdings. Upon the completion of the ‘Capital Increase’, Jiangling Holdings will hold the 354,176,000 shares of JMC, representing 41.03% of the total outstanding shares of JMC, and JMCG will no longer hold any JMC shares directly. As of the date of the annual report being released, the State-owned Assets Supervision and Administration Commission of the State Council had issued the approval of Guozichanquan [2005] No. 173, which approved JMCG’s contribution of its 354.176 million JMC State-owned shares into Jiangxi Jiangling Holdings Limited as capital investment. Such State-owned share transfer is subject to the approvals of the Ministry of Commerce of the People’s Republic of China and the China Securities Regulatory Commission, and the relevant approval-obtaining is being maken. The Report on Shareholding Changes issued by JMCG and the Extracts from the Acquisition Report issued by Jiangling Holdings were published in China Securities, Securities Times and Hong Kong Commercial Daily on December 9, 2004. The Report of Acquiring the Shares by Jiangling Holdings to All Shareholders, issued by the Board of Directors of JMC, was published in China Securities, Securities Times and Hong Kong Commercial Daily on December 23, 2004.

33

9. Public Announcements Index Item Date for

disclosure Newspaper (page)

Announcement on the resolutions of the Board on eliminating the legal entity status of Jiangling Motors Sales General Company and director change

March 17, 2004 China Securities (20th page) Securities Times (12th page) Hong Kong Commercial Daily (A5 page)

Announcement on the resolutions of the Board and the Supervisory Committee on 2003 annual report and profit distribution as well as the Extracts from 2003 Annual Report

April 9, 2004 China Securities (25th page) Securities Times (32nd page) Hong Kong Commercial Daily (B5 page)

Announcement on the resolutions of the Board on amending the Articles of Association of JMC and approving the Notice on Holding 2002 Annual Shareholders’ Meeting, as well as the notice

April 17, 2004 China Securities (B36th page) Securities Times (42nd page) Hong Kong Commercial Daily (A4 page)

2004 First Quarter Report April 23, 2004 China Securities (48th page) Securities Times (43rd page) Hong Kong Commercial Daily (A6 page)

Announcement on the resolutions of 2003 Annual Shareholders’ Meeting

May 21, 2004 China Securities (25th page) Securities Times (14th page) Hong Kong Commercial Daily (B7 page)

Announcement on the resolutions of the fifth session of the fourth Board

May 22, 2004 China Securities (B24th page) Securities Times (24th page) Hong Kong Commercial Daily (B5 page)

Announcement on Year 2003 Dividends Distribution

June 4, 2004 China Securities (21st page) Securities Times (11th page) Hong Kong Commercial Daily (A9 page)

Clarification announcement August 10, 2004

China Securities (26th page) Securities Times (43rd page) Hong Kong Commercial Daily (B9 page)

Announcement on the resolutions of the Board and the Supervisory Committee on 2004 half-year report, as well as 2004 Half-year Report

August 18, 2004

China Securities (42nd page) Securities Times (34th page) Hong Kong Commercial Daily (A5 page)

Announcement on the resolutions of the Board on Board Secretary change and director changes of Jiangling-Isuzu Motors Company, Ltd.

October 12, 2004

China Securities (17th page) Securities Times (24th page) Hong Kong Commercial Daily (B6 page)

2004 Third Quarter Report October 23, 2004

China Securities (B25th page) Securities Times (21st page) Hong Kong Commercial Daily (A8 page)

Announcement on the resolutions of the Board on the related party transaction

November 12, 2004

China Securities (20th page) Securities Times (4th page) Hong Kong Commercial Daily (B3 page)

Announcement on the resolutions of the Board on nominating the director of JMC and approving the

November 23, 2004

China Securities (21st page) Securities Times (7th page)

34

Notice on Holding 2004 Special Shareholders’ Meeting, as well as the notice

Hong Kong Commercial Daily (B5 page)

Report on Shareholding Change of Shareholder and the Extracts from the Acquisition Report

December 9, 2004

China Securities (24th page) Securities Times (21st page) Hong Kong Commercial Daily (A9 page)

Board’s Report of Acquiring the Shares by Jiangxi Jiangling Holdings Limited to All Shareholders

December 23, 2004

China Securities (21st page) Securities Times (20th page) Hong Kong Commercial Daily (B4 page)

Announcement on the resolutions of 2004 Special Shareholders’ Meeting

December 28, 2004

China Securities (32nd page) Securities Times (7th page) Hong Kong Commercial Daily (B4 page)

35

Chapter X Financial Report

36

Jiangling Motors Corporation, Ltd. Consolidated Financial Statements

31 December 2004

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Report of the Auditors

PwC ZT Shen Zi 2005/SH-055/WCML/WL

To the shareholders of Jiangling Motors Corporation, Ltd. We have audited the accompanying consolidated balance sheet of Jiangling Motors Corporation, Ltd. (“the Company”) and its subsidiaries (hereafter collectively referred to as, “the Group”) as of 31 December 2004 and the related consolidated statements of income, cash flows and changes in shareholders’ equity for the year then ended. These consolidated financial statements set out on pages 2 to 28 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects the financial position of the Group as of 31 December 2004, and of the results of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards.

PricewaterhouseCoopers Zhong Tian CPA’s Limited Company 7 April 2005

普华永道中天会计师事务所有限公司 11th Floor PricewaterhouseCoopers Center 202 Hu Bin Road Shanghai 200021, P.R.C. Telephone +86 (21) 6123 8888 Facsimile +86 (21) 6123 8800 www.pwccn.com

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004

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Consolidated balance sheet As at 31 December (All amounts in RMB thousands) Notes 2004 2003 ASSETS Non-current assets Property, plant and equipment 8 1,568,234 1,707,675Land use rights 9 147,703 151,483Investment property 10 - 23,751Investments in associates 11 20,068 18,891Deferred tax assets 12 46,696 18,675 1,782,701 1,920,475 Current assets Inventories 13 558,144 602,533Receivables and prepayments 14 477,014 314,059Cash and cash equivalents 15 1,361,472 983,938 2,396,630 1,900,530Total assets 4,179,331 3,821,005 Shareholders’ equity Ordinary shares 22 863,214 863,214Share premium 22 816,609 816,609Reserves 22,24 226,543 168,514Retained earnings 542,653 315,029Total shareholders’ equity 2,449,019 2,163,366

Minority interest 23 107,383 104,664 LIABILITIES Non-current liabilities Borrowings 17 121,111 191,111Retirement benefit obligations 19 94,327 93,722 215,438 284,833 Current liabilities Trade and other payables 16 1,216,822 1,016,743Current tax liabilities 11,585 3,592Borrowings 17 90,000 165,000Provisions 18 70,084 63,807Retirement benefits obligations 19 19,000 19,000 1,407,491 1,268,142Total liabilities 1,622,929 1,552,975 Total equity and liabilities 4,179,331 3,821,005 The notes on pages 6 to 28 are an integral part of these consolidated financial statements.

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004

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Consolidated income statement Year ended 31 December (All amounts in RMB thousands) Notes 2004 2003

Sales 1 5,770,676 5,094,897Sales tax and surcharge (84,807) (72,757)Net sales 5,685,869 5,022,140Cost of sales (4,543,845) (3,757,513)Gross profit 1,142,024 1,264,627Other operating income 35,865 22,971Distribution costs (383,711) (315,038)Administrative expenses (316,836) (475,460)Other operating expenses (11,740) (10,498)Profit from operations 2 465,602 486,602Finance costs - net 3 8,135 (11,563)Share of result of associates before tax 11 4,228 4,993Profit before tax 477,965 480,032Income tax expense 5 (39,908) (59,138)Group profit before minority interest 438,057 420,894Minority interest 23 (22,923) (38,639) Net profit 415,134 382,255 Earnings per share (RMB per share) 6 0.481 0.443 The notes on pages 6 to 28 are an integral part of these consolidated financial statements.

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004

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Consolidated statement of changes in shareholders’ equity

(All amounts in RMB thousands) Notes Ordinaryshares

Shares premium

Reserves Retained earnings

Total

Balance at 1 January 2003 863,214 816,609 101,192 86,416 1,867,431Net profit for the year - - - 382,255 382,255Statutory reserves transfer relating to 2003

- - 67,322 (67,322) -

Dividend relating to 2002 - - - (86,320) (86,320)

Balance at 31 December 2003/ 1 January 2004

863,214 816,609 168,514 315,029 2,163,366

- Net profit for the year - - - 415,134 415,134Statutory reserves transfer relating to 2004

- - 58,029 (58,029) -

Dividend relating to 2003 - - - (129,481) (129,481)Balance at 31 December 2004 863,214 816,609 226,543 542,653 2,449,019

The notes on pages 6 to 28 are an integral part of these consolidated financial statements.

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004

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Consolidated cash flow statement Year ended 31 December(All amounts in RMB thousands) Notes 2004 2003 Cash flows from operating activities Cash generated from operations 25 824,468 876,967Interest paid (14,613) (31,635)Tax paid (59,936) (50,480) Net cash from operating activities 749,919 794,852 Cash flows from investing activities Purchase of property, plant and equipment (135,101) (184,092)Proceeds from sale of property, plant and equipment 25 2,134 3,257Proceeds from disposal of investment property 28,638 -Proceeds from disposal of held-to-maturity investments - 200Interest received 24,334 20,213Dividends received 3,044 1,193 Net cash used in investing activities (76,951) (159,229) Cash flows from financing activities Proceeds from borrowings 60,000 450,000Repayments of borrowings (205,000) (817,406)Dividends paid to Company’s shareholders (128,445) (85,625)Dividends paid to minority interest 23 (20,203) (14,811)Other cash paid relating to financing activities (2,049) (1,152) Net cash used in financing activities (295,697) (468,994) Effects of exchange rate changes 263 574 Net increase in cash and cash equivalents 377,534 167,203 Cash and cash equivalents at beginning of the year 983,938 816,735 Cash and cash equivalents at end of the year 1,361,472 983,938 The notes on pages 6 to 28 are an integral part of these consolidated financial statements.

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

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General information Jiangling Motors Corporation, Ltd. (hereafter referred to as “the Company”) was established in

the People’s Republic of China (hereafter referred to as “PRC”) under the Company Law of the PRC and under the approval Hongban (1992) No. 005 of Nangchang Revolution and Authorization Group of Company’s Joint Stock as a joint stock limited company to hold certain operational assets and liabilities of the automotive manufacturing business of Jiangxi Motors Manufacturing Factory. The Legal Representative’s Operating License is No.002473. On 23 July 1993, with the approval of Zhengjianfashen [1993] No. 22 and Zhengjianhan [1993] No.86 of China Securities Regulatory Commission, the Company issued 494,000,000 A share to domestic public investors and PRC legal persons in Shenzhen Stock Exchange on 1 December 1993. On 8 April 1994, with the approval of Board minutes and Ganzhengquan [1994] No. 02 of Jiangxi Securities Regulatory Team, the Company issued 25,214,000 A shares as bonus shares to the existing 494,000,000 shares in issue in July 1993. The bonus shares were issued as a distribution from the retained earning account within shareholders’ equity. In 1995, with the approval Zhengjianfa [1995] No. 144 of China Securities Regulatory Commission and Shenzhengbanfu [1995] No. 92 of Shenzhen Securities Management Office, the Company issued 174,000,000 B shares and additional 170,000,000 B shares in 1998 with the approval Zhengjianfa [1998] No. 19 of China Securities Regulatory Commission. As at 31 December 2004, the total issued shares of the Company are 863,214,000 shares. The business scope of the Company includes the development, manufacture and sale of automobiles, engines and automobile related parts, dies and tools. These consolidated financial statements have been approved for issue by the Board of Directors on 7 April 2005.

Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial

statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

A Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (hereafter referred to as “IFRS”). The consolidated financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies below. The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current event and actions, actual results ultimately may differ from those estimates.

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

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Summary of significant accounting policies (continued) A Basis of preparation (continued) The International Accounting Standards Board ("IASB") has issued a number of new and revised

IFRS and International Accounting Standards ("new IFRSs") which are effective for accounting periods beginning on or after 1 January 2005. The Group has not early adopted these new IFRSs in these financial statements for the year ended 31 December 2004. The Group has already commenced an assessment for the impact of these new IFRSs but is not yet in a position to state whether these new IFRSs would have a significant impact on its results of operations and financial position. The Group adopted IFRS 3 “Business Combinations”, International Accounting Standard (“IAS”) 36 (revised 2003) “Impairment of Assets” and IAS 38 (revised 2003) “Intangible Assets” in relation to acquisitions with respective agreement dated on or after 31 March 2004. The Group has no goodwill recognised before 31 March 2004. There is no impact on opening retained earnings as at 1 January 2004 from the adoption of these standards. In accordance with the transitional provisions of IFRS 3, goodwill arising from acquisition on or after 31 March 2004 represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses.

B Consolidation

(1) Subsidiaries Subsidiaries are all entities over which the Group has the power to govern the financial and

operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

(2) Associates

Associates are all entities over which the Group has significant influence but not control,

generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

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Summary of significant accounting policies (continued)

B Consolidation (continued)

(2) Associates (continued) Unrealised gains on transactions between the Group and its associates are eliminated to the

extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

C Foreign currency translation

(1) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the

currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Renminbi (“RMB”), which is the Company’s functional and presentation currency.

(2) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange

rates prevailing on the first day of the month in which the transactions take place. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

D Property, plant and equipment Property, plant and equipment are stated at historical cost or, in the case of assets injected into

the Group at the time of its reorganisation, at valuation less accumulated depreciation representing the deemed cost to the Group, less accumulated depreciation and any impairment losses.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as

appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Depreciation is calculated using the straight-line method to write off the cost or the revalued

amount of each asset, to their residual values (10% except for moulds, which have no residual values) over their estimated useful lives as follows:

Buildings 20-35 years Plant and machinery 10 years Equipment and Motor Vehicles 6 years Moulds 5 years Others 5 - 7 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate at each

balance sheet date.

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

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Summary of significant accounting policies (continued)

D Property, plant and equipment (continued) Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written

down immediately to its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are

included in operating profit. Assets under construction comprises factories, office buildings, plant and machinery under

construction including the related furniture, fixtures and equipment, are stated at cost less any impairment losses, and is not depreciated. Construction in progress is transferred to property, plant and equipment when it is ready for its intended use.

Interest costs on borrowings to finance the construction of property, plant and equipment are

capitalised, during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed.

E Land use rights Land use rights are stated at cost less accumulated amortisation and impairment losses. Cost

represents consideration paid for the rights to use the land on which various warehouses, container storage areas and buildings are situated for 50 years. Amortisation of land use right is calculated on a straight-line basis over the period of the land use right.

F Investment Property Investment property, principally comprising factory building, is held for long-term rental yields and

is not occupied by the Group. Investment property is treated as a long-term investment and is stated at cost and is depreciated over the estimated useful lives of 35 years.

G Intangible assets Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development

projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if the cost can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit, not exceeding five years.

H Impairment of assets Property, plant and equipment and other non-current assets, including intangible assets are reviewed

for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows.

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

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Summary of significant accounting policies (continued)

I Investments The Group classified its investments in debt and equity securities as held-to-maturity

investments. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-valuates this designation at every reporting date. Investments with a fixed maturity that management has the positive intention and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are classified as current assets.

J Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the

weighted average cost method. The cost of finished goods and work in progress comprises direct materials, direct labour and an attributable proportion of production overheads (based on normal operation capacity). Net realisable value is the estimated selling prices in the ordinary course of business, less the costs of completion and selling expenses.

K Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of

these receivables. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. The amount of the provision is recognised in the income statement.

L Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash

flow statement, cash and cash equivalents comprise cash on hand and deposits held at call with banks.

M Ordinary shares

(1) Ordinary shares with discretionary dividends are classified as equity.

(2) Incremental external costs directly attributable to the issue of new shares, other than in connection with business combination, are shown in equity as a deduction, net of tax, from the proceeds. Share issue costs incurred directly in connection with a business combination are included in the cost of acquisition.

N Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings

are subsequently stated at amortised cost; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

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Summary of significant accounting policies (continued)

O Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences

arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable

profit will be available against which the temporary differences can be utilised.

P Employee benefits

(1) Pension obligations The Group participates in defined contribution retirement schemes regarding pension and

medical benefit required under existing PRC legislation. The contributions to the schemes are charged to the income statement as and when incurred. The Group’s obligations include contributions to a defined contribution retirement plan administered by a government agency determined at a certain percentage of the salaries of the employees and contributions to a supplementary pension fund of a fixed monthly amount per employee. The Group accounts for these contributions on the accrual basis.

In addition, the Group provides certain retirees with post-retirement benefits and the cost of

providing the aforementioned post-retirement benefits under the Group’s defined benefit plan is actuarially determined and recognised over the employees’ service period by using the projected unit credit method. Post-retirement benefit expenses recognised in the income statement, include, if applicable, current service cost, interest cost, the expected return on plan assets, amortised actuarial gains and losses, the effect of any curtailment or settlement and past service cost.

(2) Early retirement benefits

Termination benefits are payable whenever an employee’s employment is terminated before the

normal retirement date. The Group recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value.

Q Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a

result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated.

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

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Summary of significant accounting policies (continued)

R Revenue recognition Revenue comprises the fair value for the sale of goods and services, net of value-added tax,

rebates and discounts, and after eliminating sales within the Group. Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer.

Interest income is recognised on a time-proportion basis, taking account of the principal

outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. Dividends are recognised when the right to receive payment is established.

S Dividend distribution Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s

financial statements in the period in which the dividends are approved by the Company’s shareholders.

T Segment Reporting The Group’s turnover and profit for the year were mainly derived from the manufacture and

domestic sale of automobiles, related spare parts and components, and the principal assets employed by the Group are located in the PRC. Accordingly, no segmental analysis by business or geographical segments has been provided for the year.

U Comparatives Where necessary, comparative figures have been adjusted to conform with changes in

presentation in the current year.

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

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Financial risk management

The financial assets of the Group include cash and bank balances, cash and time deposits with a related financial institution, investments, accounts and bills receivable, prepayments and other receivables, and amounts due from JMCG and related companies. The financial liabilities of the Group include bank loans, accounts and bills payable, receipts in advance, accruals and other payables, accrued staff welfare and benefits, amounts due to related companies, an amount due to minority shareholders of the company and an amount due to a minority shareholder of a subsidiary.

(1) Interest rate risk

The interest rates and terms of the repayment of bank loans of the Group are disclosed in note

17 to the financial statements, respectively.

(2) Credit risk

(i) Cash at bank and in hand Substantial amounts of the Group’s cash balances are deposited with the Bank of China, the

Industrial and Commercial Bank of China, the Bank of Communications, the Agricultural Bank of China, the China Merchants Bank and the People’s Construction bank of China. Cash and time deposits are also placed with Jiangling Motors Corporation Finance Co., Ltd., a subsidiary of JMCG.

(ii) Accounts receivable

The Group does not have a significant exposure to any individual customer or counter party.

The major concentrations of credit risk arise from exposures to a substantial number of accounts receivable operating in one geographical region, i.e., the PRC.

(3) Fair values

The fair values of cash and bank balances, cash and time deposits with a related financial

institution, investments, accounts and notes receivable, prepayments and other receivables amounts due from JMCG and related companies, accounts and bills payable, receipts in advance, accruals and other payables, accrued staff welfare and benefits, amounts due to related companies, an amount due to minority shareholders and an amount due to a minority shareholder of a subsidiary, are not materially different from their carrying amounts.

The carrying values of short term bank loans are estimated to approximate their fair values

based on the nature or short term maturity of these instruments. The fair values of long term bank loans as estimated by applying a discounted cash flow using

current market interest rates for similar financial instruments approximate their carrying values. Fair value estimates are made at a specific point in time and are based on relevant market

information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

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Notes to the consolidated financial statements 1 Sales The Group principally derives its turnover from the manufacture, assembly and sale of

automobiles, related spare parts and components, and sales are made principally in the PRC. Considering the principal assets employed by the Group are also located in the PRC, no segmental analysis by business or geographical segments has been provided for the year.

2 Profit from operations

The following items have been included in arriving at operating profit: 2004 2003 Depreciation on property, plant and equipment (Note 8) 273,436 299,245 Impairment / (write-back of impairment) - property, plant and equipment (Note 8) 4,859 2,380 - receivables and prepayments (818) (6,941) - inventory (6,173) 10,481 Loss on sale of property, plant and equipment 4,646 4,942 Gain on sale of investment property (Note 10) (5,068) - Repairs and maintenance expenditure on property, plant

and equipment

65,867 27,866 Amortisation - other non-current assets (included in ‘Administrative

expenses’) - 26,956 - intangible assets (included in ‘Administrative

expenses’)

- 7,372 - land use rights (Note 9) (included in ‘Administrative

expenses’) 3,410 3,416 - investment properties under operating leases

(included in ‘Administrative expenses’)

182 730 Research and development expenditure 66,877 95,205 Inventory

- costs of inventories recognised as expense (included in ‘Cost of sales’)

4,006,250 3,307,660 Staff costs (Note 4) 218,618 264,837

3 Finance costs – net

2004 2003 Interest expense (Note 25) - Bank borrowings (14,364) (30,599) - Borrowings from Jiangling Motors Corporation

Finance Co., Ltd. (hereafter referred to as “JMCF”) - (453) Interest income (Note 25) 24,334 20,213 Net foreign exchange transaction gain/(loss) (1,328) 574 Guarantee expense - (725) Others (507) (573) 8,135 (11,563)

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

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4 Staff costs

2004 2003 Wages and salaries 168,019 172,668 Social security costs 8,790 26,272 Pension costs − defined contribution plan 19,566 18,164 Pension costs − defined benefit plan (Note 19) 17,856 41,000 Others 4,387 6,733 218,618 264,837 The average number of employees in 2004 was10, 290 (2003:10,281), including early retirees and

retirees who are still responsibility of the company. The employees of the Group participated in a retirement benefit plan organized by the municipal

and provincial governments under which the Group was required to make defined contributions monthly to this plan.

In addition, the Company also paid certain pension subsidies to certain retired employees. In

accordance with the Company’s early retirement programs, the Company was also committed to make periodic benefit payments to certain early-retired employees until they reach their legal retirement ages.

5 Income tax expense

2004 2003 Current tax (67,929) (48,435) Deferred tax (Note 12) 28,021 (10,703) (39,908) (59,138) The tax on the Group’s profit before tax differs from the theoretical amount that would arise using

the tax rate of the Company as follows: 2004 2003 Profit before tax 477,965 480,032 Tax calculated at a tax rate of 10% (2003:10%) (47,796) (48,003) Income not subject to tax 4,411 12,921 Expense not deductible for tax purposes (3,824) (5,989) Effect of tax rate change 14,089 (4,735) Effect of different tax rates for associates and

consolidated subsidiaries

(6,788) (13,332) Tax credit/ (charge) (39,908) (59,138)

With the approval HongganGuoshuiwaifa [2003] No.054 of tax authority in Nanchang, the applicable tax rate of the Company is 15%, and the Company is entitled to a preferential tax rate of 10% for the period from 2002 to 2004. The income tax rate applicable to Jiangling Isuzu Motors Company Limited (hereafter refer to as “Jiangling Isuzu”), a subsidiary, is 15%.

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

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6 Earnings per share

Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the

weighted average number of ordinary shares in issue during the year.

2004 2003 Net profit attributable to shareholders (RMB’000) 415,134 382,255 Weighted average number of ordinary shares in issue

(thousands) 863,214 863,214

Basic earnings per share (RMB per share) 0.481 0.443 No diluted earnings per share is presented as there were no potential ordinary share outstanding

during the year ended 31 December 2004 and 2003.

7 Dividend per share The dividends paid in 2004 and 2003 were 129,481 (RMB 1.5 Yuan per ten shares) and 129,481

(RMB 1.5 Yuan per ten shares) respectively. A dividend in respect of 2004 of RMB 0.15 Yuan per share, amounting to a total dividend of 129,481, is to be proposed at the Directors’ Meeting on 7 April 2005. These financial statements do not reflect this dividend payable.

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

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8 Property, plant and equipment

Buildings Plant & machinery Vehicles Moulds

Assets under construction Others Total

Year ended 31 December 2003 Opening net book amount 512,916 686,049 16,489 180,411 125,053 311,607 1,832,525 Additions 160 6,594 5,287 7,332 141,041 29,534 189,948 Reclassification (4,974) - - - - - (4,974) Transfers 17,243 24,097 9,736 - (91,725) 40,649 - Disposals - (3,152) (933) - - (4,114) (8,199) Impairment charge (Note 2) - (2,428) (229) - 2,991 (2,714) (2,380) Depreciation charge (Note 2) (15,405) (121,263) (4,373) (83,622) - (74,582) (299,245) Closing net book amount 509,940 589,897 25,977 104,121 177,360 300,380 1,707,675 At 31 December 2003 Cost 618,915 1,357,011 54,602 529,301 179,144 664,104 3,403,077 Accumulated depreciation (108,975) (767,114) (28,625) (425,180) (1,784) (363,724) (1,695,402) Net book amount 509,940 589,897 25,977 104,121 177,360 300,380 1,707,675 Year ended 31 December 2004 Opening net book amount 509,940 589,897 25,977 104,121 177,360 300,380 1,707,675 Additions 648 4,763 3,469 59,547 69,784 7,423 145,634 Reclassification (35) 14,944 (118) 59 - (14,850) - Transfers 9,759 26,967 2,436 - (76,696) 37,534 - Disposals (807) (2,163) (2,952) - - (858) (6,780) Impairment charge (Note 2) - (1,892) (25) 24 (488) (2,478) (4,859) Depreciation charge (Note 2) (15,725) (119,455) (5,116) (67,614) - (65,526) (273,436) Closing net book amount 503,780 513,061 23,671 96,137 169,960 261,625 1,568,234 At 31 December 2004 Cost 614,866 1,393,847 47,906 587,748 172,232 675,858 3,492,457 Accumulated depreciation (111,086) (880,786) (24,235) (491,611) (2,272) (414,233) (1,924,223) Net book amount 503,780 513,061 23,671 96,137 169,960 261,625 1,568,234

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

54

8 Property, plant and equipment (continued) In connection with the Group’s reorganisation in 1993, the Group’s property, plant and equipment

were revalued on 31 December 1992 by Zhonghua (Shenzhen) Certified Public Accountants on a depreciated replacement value basis. The opening accumulated depreciation of the revalued assets was computed using depreciation rates as stipulated by the State regulations, which are generally consistent with those applied by the Group for the preparation of its financial statements. Since this was a special purpose valuation conducted for the purposes of the formation of a joint stock limited company, this became deemed costs of the Company’s property, plant and equipment. Subsequent revaluations have not been performed and all further additions have been recorded at cost.

As at 31 December 2004, buildings, machinery and equipment with a net book value of

RMB182,148 (cost of RMB426,782) had been pledged as security for non-current bank borrowings of RMB110,000 (Note 17).

9 Land use rights

2004 2003 Opening net book amount 151,483 154,899 Amortisation charge (Note 2) (3,410) (3,416) Disposal (370) - Closing net book amount 147,703 151,483 At 31 December Cost 172,535 172,906 Accumulated amortisation (24,832) (21,423) Net book amount 147,703 151,483 10 Investment property

2004 2003 Investment properties under operating leases, net - 23,751 In March 2004, the investment properties were sold to a third party, and the gain on sale of

investment property of Rmb5,068 has been included in “other operating expenses” in the income statement (Note 2).

11 Investments in associates 2004 2003 At the beginning of the year 18,891 15,091 Share of results before tax 4,228 4,993 Dividends received (3,044) (1,193) Others (7) - At end of the year 20,068 18,891

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

55

11 Investments in associates (continued) The associates, which are unlisted, are: Country of

incorporation % interest

held Jiangxi Fujiang After-Sales Service Co., Ltd. PRC 20% Jiangxi Fuchang Climate System Co., Ltd. PRC 19.15%

Jiangxi Fujiang After-Sales Service Co., Ltd (hereafter referred to “Jiangxi Fujiang”) is a Sino-foreign equity joint venture with a registered capital of US$ 4.4 million, of which Ford Motors Company has an 80% interest and the Company has the remaining 20% interest. Jiangxi Fujiang’s principal activity includes after-sales services. In March 1996, the Company entered into a Sino-foreign equity joint venture agreement with Visteon International Holding Co., Ltd. (hereafter referred to as “Visteon”) to form Jiangxi Fuchang Climate Systems Co., Ltd. (hereafter referred to as “Jiangxi Fuchang”). The tenure of Jiangxi Fuchang is thirty years, and its principal activities include manufacture and sale of air-conditioners and spare parts for motor vehicles.

Jiangxi Fuchang has a registered capital of US$5.6 million, of which Visteon has an 80.85%

interest and the Company has the remaining 19.15% interest. The registered capital of Jiangxi Fuchang was paid up by the Company in the form of buildings, land use rights and electricity usage rights totalling RMB8,934, equivalent to approximately US$1,072.

12 Deferred tax assets Deferred income taxes are calculated in full on temporary differences under the liability method

using a principal tax rate of 15% (2003: 10%). The movement on the deferred tax assets account is as follows: 2004 2003 At beginning of the year 18,675 29,378 Income statement credit/(charge) (Note 5) 28,021 (10,703) At end of the year 46,696 18,675 Provision of

assetsRetirement

benefits obligation

Accrued expenses

Welfare payable

Total

At 1 January 2003 18,516 10,862 - - 29,378 Credited/(charged) to the

income statement (11,113) 410

-

- (10,703) At 31 December 2003 7,403 11,272 - - 18,675 Credited/(charged) to the

income statement (581) 5,727

20,921

1,954 28,021 At 31 December 2004 6,822 16,999 20,921 1,954 46,696 The amounts shown in the balance sheet include the followings: 2004 2003 Deferred tax assets to be recovered after more than 12 months 20,971 18,485

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

56

13 Inventories

2004 2003 Raw materials (at net realisable value) 307,043 287,072 Work in progress (at cost) 52,769 54,893 Finished goods (at net realisable value) 198,332 260,568 558,144 602,533

14 Receivables and prepayments

2004 2003 Trade receivables 107,878 74,738 Less: Provision for impairment of receivables (3,532) (5,702) Trade receivables – net 104,346 69,036 Receivables from associates 91 - Receivables from related parties (Note 26) 44,594 49,667 Notes receivables 216,795 96,950 Prepayments 93,295 78,300 Other receivables 17,893 20,106 477,014 314,059 15 Cash and cash equivalents

2004 2003 Cash at bank and in hand 1,250,407 830,898 Short term bank deposit 111,065 153,040 1,361,472 983,938 As at 31 December 2004, the Group had cash deposits of RMB86,784 (2003: RMB 108,268)

placed with a related financial institution, JMCF, which is a subsidiary of JMCG, of which RMB2,120 (2003: RMB2,123) was denominated in foreign currencies of US$69 and HK$1,458 (2003: US$69 and HK$1,457), respectively. The cash deposits, which can be withdrawn at any time on demand, are interest-bearing at 0.0025% to 1.44% per annum (2003: 0.0625% to 1.44% per annum).

16 Trade and other payables 2004 2003 Trade payables 639,557 565,660 Amount due to associates (Note 26) 25,039 11,992 Amount due to related parties (Note 26) 248,600 77,102 Accrued expenses 142,247 63,570 Payroll and welfare payable 65,214 93,799 Other payables 96,165 204,620 1,216,822 1,016,743

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

57

17 Borrowings 2004 2003 Non-current Bank borrowings - unsecured - 51,111 - secured 121,111 140,000 121,111 191,111 Current Bank borrowings - unsecured 90,000 105,000 - secured - 60,000 90,000 165,000 Total borrowings 211,111 356,111 The interest rate of bank borrowings is ranging from 1.50% to 5.49% per annum (2003: from

1.65% to 5.58%). As at 31 December 2004, secured bank borrowings comprise: (1) Bank borrowings of RMB110,000 (2003: RMB200,000) were secured by certain buildings,

machinery and equipment with a net book value of RMB182,148 (original cost of RMB426,782) (Note 8).

(2) Bank borrowings of RMB11,111 (2003: RMB11,111) guaranteed by JMCF. The maturity of non-current borrowings is as follows: 2004 2003 Between 1 and 2 years 110,000 - Between 2 and 5 years - 140,000 Over 5 years 11,111 51,111 121,111 191,111 18 Provisions The Group gives warranties on vehicles sold and undertakes to repair or replace items that fail to

perform satisfactorily within the period of the sooner of two years and fifty thousand kilometres. A provision of Rmb70,084 (2003:Rmb 63,807) has been recognised at the year-end for the expected warranty claims based on past experience of the level of repairs and returns. It is expected that Rmb47,000 will be used during 2005, and Rmb23,084 during 2006.

The movement on the provisions account is as follows: 2004 2003 At beginning of the year 63,807 49,719 Additional provision 55,344 70,345 Payment for the year (49,067) (56,257) At end of the year 70,084 63,807 Current 47,000 39,400 Non-current 23,084 24,407 70,084 63,807

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

58

19 Retirement benefits obligations 2004 2003 At beginning of the year 112,722 90,516 Additional provision 17,856 41,000 Payment for the year (17,251) (18,794) At end of the year 113,327 112,722 Current 19,000 19,000 Non-current 94,327 93,722 113,327 112,722 The material actuarial assumptions used in valuing these obligations are as follows: (1) Discount rate adopted: 3.96%-4.5% (2) Mortality: average life expectancy of residents in the PRC. Based on the assessment and IAS No. 19, the Company estimated that, at 31 December 2004, a

provision of 113,327 is sufficiently to cover all future retirement-related obligations. Obligation in respect of retirement benefits of Rmb113,327 is the present value of the unfunded

obligations, of which the current portion amounting to Rmb19,000 (2003:Rmb19,000) has been included under current liabilities.

20 Contingencies

At 31 December 2004, the Company did not have any significant contingent liabilities.

21 Commitments (a) Capital commitments Capital expenditure contracted for at the balance sheet date but not recognised in the financial

statements, comprises purchases of buildings, plant and machinery, is as follows: 2004 2003 Contracted 21,881 56,081 21,881 56,081 (b) Royalty fee payable to a shareholder On 21 August 1995, the Company entered into a joint development agreement with a

shareholder, Ford Motor Company (hereafter referred to as “Ford”), in which Ford agreed to provide technical assistance to the Company for the production of automobiles. In return, the Company agreed to pay Ford a total amount of US$40,000 by the end of the year 2004. On 29 September 2000, an amendment to the development agreement was entered into between the Company and Ford to waive the aforesaid repayment terms and royalty payment is calculated based on 1.8% of sale value of automobiles. As at 31 December 2004, the outstanding royalty fee committed, but not provided for, amounted to US$24,123 (2003: US$27,574).

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

59

22 Ordinary share and share premium

Number ofshares

(thousands)Ordinary

sharesShare

premium Capital reserve Total

At 1 January 2004 863,214 863,214 816,609 18,685 1,698,508 Addition - - - - At 31 December 2004 863,214 863,214 816,609 18,685 1,698,508 The total authorised number of ordinary shares is 863,214 shares (2003: 863,214 shares) with a

par value of RMB 1 per share (2003: RMB 1 per share). All issued shares are fully paid.

23 Minority interests 2004 2003 At 1 January 104,664 80,836 Share of net profit of subsidiaries (Note 25) 22,923 38,639 Dividend paid (20,204) (14,811) At 31 December 107,383 104,664

24

Statutory and discretionary reserves

Statutory

reserve

Statutory public

welfare fund

Discretionary surplus reserve Total

At 1 January 2003 74,608 7,899 - 82,507 - Reserves transfer relating to 2003 44,881 22,441 - 67,322 At 31 December 2003/

1 January 2004 119,489 30,340 - 149,829 - Reserves transfer relating to 2004 38,686 19,343 - 58,029 At 31 December 2004 158,175 49,683 - 207,858 Transfers from the income statement to statutory reserve and statutory public welfare fund were

made in accordance with the relevant statutory rules and regulations and the Articles of Association of the Company and Jiangling Isuzu.

Statutory reserve According to the Company’s Articles of Association, the Company is required to transfer 10% of

its profit after tax, as determined under PRC accounting regulations, to the statutory reserve until the reserve balance reaches 50% of the registered capital.

The statutory reserve can be used to make good previous years’ losses, if any, and may be

converted into share capital by the issuance of new shares to shareholders in proportion to their existing shareholdings. The transfer to this reserve must be made before the distribution of dividends to shareholders.

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

60

24 Statutory and discretionary reserves (continued) Statutory public welfare fund The statutory public welfare fund can only be utilized on capital items for the collective

benefits of the Company’s employees such as the construction of dormitories, canteen and other staff welfare facilities. The transfer to this reserve must be made before distribution of dividends to shareholders. This reserve is non-distributable other than in liquidation of the Company.

Discretionary surplus reserve The Board of Directors, after obtaining approval from the shareholders, has the discretion to

provide for discretionary surplus reserve.

25 Cash generated from operations 2004 2003 Net profit 415,134 382,255 Adjustments for: Minority interest (Note 23) 22,923 38,639Tax (Note 5) 39,908 59,138Depreciation (Note 2) 273,436 299,245Amortisation (Note 2) 3,592 38,474Impairment charge / (write-back of impairment) (Note 2) (2,132) 5,920Loss on sale of property, plant and equipment (Note 2) 4,646 4,942Gain on sale of investment property (Note 2) (5,068) -Interest income (Note 3) (24,334) (20,213)Interest expense (Note 3) 14,364 31,052Other finance costs

1,835 724Share of results of associates before tax (Note 11) (4,228) (4,993) Changes in working capital: Inventories 50,562 (176,176)Trade and other receivables (162,955) (24,661)Payables 189,903 206,327Provisions 6,277 14,088Pensions and other retirement benefits 605 22,206 Cash generated from operations 824,468 876,967 In the cash flow statement, proceeds from sale of property, plant and equipment comprise: 2004 2003 Net book amount 6,780 8,199Loss on sale of property, plant and equipment (Note 2) (4,646) (4,942)Proceeds from sale of property, plant and equipment 2,134 3,257

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

61

26 Related party transactions

JMCG (state-owned enterprise incorporated in the PRC), which owns 41.03% of the Company’s

shares, and Ford (foreign enterprise incorporated in the United State of America), which owns 29.96% of the Company’s shares, are major shareholders of the Company.

The following is a summary of the significant transactions carried out between the Group, its

associates, JMCG and its subsidiaries, Ford, Isuzu-Motors Corporation of Japan (hereafter referred to as “Isuzu”) and their subsidiaries in the ordinary course of business during the year:

i) Sales of goods and provision of services 2004 2003 Sales of goods: JMCG Variant Vehicle Factory 18,992 6,363 Jiangling Land Wind Vehicle Co., Ltd. 105,525 66,936 Jiangling Tractor Co., Ltd. 1,723 2,589 JMCG Import & Export Co., Ltd. 148,285 71,814 JMCG Industrial Co. 89,736 81,206 Jiangling Chassis Company 27,475 21,631 Jiangling new-power Auto manufacturing Co 3,041 3,766 Jiangling-Lear Interior Trim Factory 1,165 1,060 Nanchang Gear Co., Ltd. 17,039 11,517 Land Wind sales company 1,142 - Jiangling Fu Da auto component Co. 23,872 - JMCG Interior Trim Factory 68,145 55,393 Hua Xiang Auto Components Co. 15,521 11,771 Jiangling Auto Component Co. 13,283 6,763 Jiangxi Radiator Plant 1,392 2,297 JMCG Special Purpose Vehicle Plant 190,355 - JMCG Construction & Development Co. 2,808 6,102 JMCG property Co. 2,725 - Others 1,211 850 733,435 350,058

Provision of services:

Jiangling Land Wind Vehicle Co., Ltd. - 176 Jiangxi Fujiang After-Sales Service Co., Ltd. 423 421 423 597 Lease JMCG Variant Vehicle Factory 600 600 JMCG Industrial Co. 577 541 Others 285 117 1,462 1,258

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

62

26 Related party transactions (continued)

ii) Purchases of goods and services 2004 2003 JMCG 344,656 269,311 Nanchang Gear Co., Ltd. 144,233 151,013 Jiangling-Lear Interior Trim Factory 124,826 124,489 Jiangxi Fuchang Climate System Co., Ltd. 92,958 93,313 JMCG Interior Trim Factory 151,799 115,986 Ford Motor Company 95,665 78,958 JMCG Variant Vehicle Factory 32,029 43,223 JMCG Industrial Co. 37,823 29,746 Jiangxi Radiator Plant 19,905 18,516 Nanchang Brake Plant - 18,335 Hua Xiang Auto Components Co. 50,772 16,539 Jiangling Forging Co., Ltd. 12,863 10,145 Xinyu Xinling Nonferrous Compression Casting Co.,

Ltd. 1,388 4,874 Jiangling Metal Casting Plant 9,600 1,451 Jiangling Chassis Company 1,666 984 Jiangling Auto Component Co. 3,163 - JMCG Special Purpose Vehicle Plant 219,378 - Jiangling material Co. 12,455 11,180 Others 148 106 1,355,327 988,169 ii) Purchases of goods and services (continued) 2004 2003 Purchases of Services: JMCG Import & Export Co., Ltd. - Commission expenses 4,998 3,891 JMCG Construction & Development Co. - services 12,755 14,473 Jiangxi Fujiang After-Sales Service Co., Ltd. - services 8,276 7,178 Ford Motor Company - services 749 346 JMCG - Guarantee expense - 725 - Rental expense 1,628 1,684 - Management expense 8,422 9,344 Total JMCG 10,050 11,753

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

63

26 Related party transactions (continued)

iii) Year-end balances arising from sales/purchases of goods/services 2004 2003 Receivables from related parties: Nanchang Gear Co., Ltd. - 17,719 JMCG Import & Export Co., Ltd. 4,202 16,999 JMCG Industrial Co 3,121 6,871 Jiangling Land Wind Motor Co., Ltd. 26,765 4,963 Jiangling Fu Da auto component Co. 7,046 - Jiangling Chassis Company - 1,387 JMCG Interior Trim Factory - 1,353 Others 3,551 1,509 44,685 50,801 2004 2003 Property,plant and equipment: JMCG Construction & Development Co. 173 1,205 JMCG Import & Export Co., Ltd. 2,004 5,329 2,177 6,534 2004 2003 Payables to related parties: JMCG Interior Trim Factory 18,452 32,142 Jiangxi Fuchang Climate System Co., Ltd. 25,039 11,992 Ford Motor Company 9,470 9,431 JMCG Variant Vehicle Factory 6,404 5,232 JMCG 68,211 904 JMCG Import & Export Co., Ltd. 453 5,725 Jiangxi Forging Co., Ltd. 1,754 1,166 Nanchang Gear Co., Ltd. 35,431 1,788 Nanchang Brake Plant - 3,556 Jiangling-Lear Interior Trim Factory 41,742 15,197 Jiangling Chassis Company 3,099 - Jiangling Auto Component Co. 5,787 807 Hua Xiang Auto Components Co. 18,657 146 JMCG Special Purpose Vehicle Plant 22,616 - Jiangling Metal Casting Plant 1,960 46 JMCG Industrial Co 8,604 - Jiangxi Radiator Plant 4,683 - Others 1,277 961 273,639 89,093 iv) Directors’ remuneration In 2004 the total remuneration of the directors was RMB 178 (2003: RMB 68).

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

64

27 Principal subsidiaries

Entity Place and date of incorporation

Percentage of equity interest held Principal activities

Jiangling Isuzu Motors

Company Limited 75% Manufacture and sale of

automobiles and spare parts Jiangling Motors Sales

Company

Nanchang, PRC 10 March 1993 Nanchang, PRC 31 December 1993

100% Sale of automobiles, engines and spare parts

Jiangling Motors Sales Company was de-registered on 18 August 2004. 28 Post balance sheet events

On 7 April 2005, the Board of Directors proposed a final dividend of RMB 0.15 Yuan per share

for the year ended 31 December 2004, totalling approximately RMB129,482.1. The proposed dividend distribution is subject to shareholders’ approval in the next general meeting. In accordance with the revised IFRS 10, “Events after the Balance Sheet Date”, the dividend proposed after the balance sheet date will be recorded in the Group’s financial statements for the year ended 31 December 2005.

29 Other significant matters

Pursuant to an agreement dated 28 October 2004 entered into between JMCG and Chongqing Changan Automobile Corporation Ltd., each party injected cash of Rmb50 million to form Jiangxi Jiangling Holdings Limited (“Jiangling Holdings”). Jiangling Holdings was registered on 1 November 2004 with the registered capital of Rmb100 million. The registered address is 509 Yingbing North Bi Avenue, Nanchang City, Jiangxi Province, P.R.C.

On 6 December 2004, JMCG, Chongqing Changan Automobile Corporation Ltd. entered into an agreement with Jiangling Holdings. JMCG will increase the capital in Jiangling Holdings by way of transferring the state-owned shares of 354,176,000 shares, representing 41.03% of total ordinary shares of the Company, and related liabilities. Upon the completion of the share transfer, Jiangling Holdings will become the major shareholder of the Company, and directly owns 41.03% of the Company’s shares. JMCG will no longer directly own any shares of the Company.

Up to the issuance of this report, the transfer has been approved by the Stated-owned Assets Supervision and Administration Commission of the State Council, and still in the process of obtaining the approval from the Ministry of Commerce and China Securities Supervisory Commission.

Jiangling Motors Corporation, Ltd. Year ended 31 December 2004 Notes to the Consolidated Financial Statements (In the notes, all amounts are shown in RMB thousands unless otherwise stated)

65

Impact of IFRS adjustments on the consolidated profit after tax and shareholders’ equity

Net assets Net profitAs reported in the accounts of the Group under PRC accounting principles 2,510,599 386,8581. Deferred Tax asset 46,696 28,0212. Pension defined benefit (113,327) (605)3. Minority interest 5,051 6,5014. Staff bonus and welfare fund of Jiangling Isuzu

appropriated from profit after tax - (6,194)5. Others 553As restated in conformity with IFRS 2,449,019 415,134

66

Chapter XI Catalog on Documents for Reference

1. Originals of 2004 financial statements signed by legal representative and Chief Financial

Officer. 2. Originals of the Auditors’ Reports signed by registered accountants and stamped by the

accounting firm. 3. Originals of all the documents and public announcements disclosed in newspapers

designated by CSRC in 2004. 4. The Annual Report in CAS. Board of Directors Jiangling Motors Corporation, Ltd. March 25, 2004