CHONGQING JIANSHE MOTORCYCLE CO.,LTD. - china.com.cn · 建设摩托 Annual Report 2004 (International) 1 CHONGQING JIANSHE MOTORCYCLE CO.,LTD. Annual Report 2004 (International)

建设摩托 Annual Report 2004 (International)

1

CHONGQING JIANSHE MOTORCYCLE CO.,LTD.

Annual Report 2004

(International)

Important Statements：

The Board of Directors and the directors of the Company guarantee that there are no significant omissions, fictitious or

misleading statements carried in the Report and we will accept individual and joint responsibilities for the truthfulness,

accuracy and completeness of the Report.

Mr. He Tongwei, the director, and Mr. Meng Weidong the independent director didn’t present the 20th meeting of the

3rd term of board, director Bai Baolin and independent director Xu Mingyue were entrusted to vote on their behalf.

Mr. Chen Yongqiang, the Chairman of Board, Mr. Qiu Lin, the deputize GM, and Mr. Teng Feng, the Financial

Supervisor hereby declares: the truthfulness and completeness of the report are guaranteed.

Chen Yongqiang

The Chairman of the Board

Table of Contents

I. Company Profile

II. Financial Highlight

III. Particulars About the Capital Share and Shareholders

IV. Particulars about Directors, Supervisors, Senior Executives and Employees

V. Managerial Structure

VI. The Shareholders’ General Meeting

VII. Report of the Board of Directors

VIII. Report of the Supervisory Committee

IX. Significant Events

X. Financial Statements

建设摩托 2004Annual Report (International)

二

I. Company Profile

(I) Statutory Chinese name: 重庆建设摩托车股份有限公司

Statutory English name: CHONGQING JIANSHE MOTORCYCLE CO.,LTD.

(II) Legal representative: Chen Yongqiang

(III) Secretary of the Board: Ju Bin

Address: 47 Xiejiawan Zhengjie Jiulongpo District, Chongqing

Tel: (023) 68676987

Fax: (023) 68676987

Email: [email protected]

(IV) Registered address: 47 Xiejiawan Zhengjie Jiulongpo District, Chongqing

Office address: 47 Xiejiawan Zhengjie Jiulongpo District, Chongqing

Post code: 400050

Website: http://www.jianshe.com.cn

Email: [email protected]

(V) Information disclosure media:

Website: http://www.cninfo.com.cn

Press media: Securities Times, Hong Kong Commercial Daily

Place where the reports and announcement are ready for inquiry:

Secretary Office of the Board

(VI) Stock listed in: Shenzhen Stock Exchange

Abbreviation of the stock: ST Jianmo B

Stock code: 200054

(VII) Misc. Information

Primary registration date: July 19th, 1995

Secondary registration on: March 11 th, 2003

Primary registration place: Shenzhen Industry & Commerce Administrative Bureau

Secondary registration place: Chongqing Industry & Commerce Administrative Bureau

Business license No. 5000001805583

Taxation registration No. National: 500107747482423

Municipal: 500107747482423

Certified Public Accountant: Domestic: Shenzhen Nanfang-Minhe CPA

Address: 8th floor. 2072 Shennanzhong Road, Electronic Building, Shenzhen

International: More Stephens Shenzhen Nanfang-Minhe CPA

Address: 8th floor. 2072 Shennanzhong Road, Electronic Building, Shenzhen


三

II. Financial Highlight

(I) The Company achieved in the report year gross profit of RMB37,146,000and net profit of RMB38,573,000.

Among them, net profit after deducting non-recurring gain/loss RMB5,362,000, major business profit

RMB252,675,000, net cash flow due operation activities RMB181,402,000, net increasing of cash and cash

equivalents RMB395,258,000.

Note: Non-recurring items are including: non business express of RMB –645,000, capital occupation

charge on none-financial entities of RMB12,995 thousand, non-business income of RMB154,000, write

back of inventory impairment provision of RMB19,628,000, allowance income of RMB1,079,000. Totally

RMB33,211,000

(II) Major accounting data and financial indices of the 3 years prior to the ending of the report year.

Items 2004 2003 2002

Major business turnover (RMB’000) 1,850,975 1,384,716 488,950

Net profit (RMB’000) 38,573 11,799 -134,748

Total assets (RMB’000) 2,532,216 1,717,668 1,100,988

Shareholder’s equity (RMB’000) 210,629 172,056 160,257

Earnings per share (yuan/share) 0.08 0.02 -0.28

Net asset per share (RMB) 0.44 0.36 0.34

Net asset per share adjusted (RMB) 0.44 0.24 0.32

Net Cash flow per share generated

by business operation (RMB) 0.38 0.50 -0.11

Net earnings / capital ratio (%) 18.31 6.86 -84.08

Earnings per share after deducting

of non-recurring gain/loss (RMB) 0.01 -0.11 -0.30

Earnings per share, weighted average (RMB) 0.08 0.02 -0.28

Net earnings / capital ratio after deducting of non-recurring gain/loss (%) 2.80 -32.33 -63.58

Net earnings / capital ratio, weighted (%) 0.20 0.07 -59.20

(III) Notes to the difference of net profit (profit) and shareholders' equity determined respectively according to

Chinese accounting standards and international accounting standards (RMB'000)：

Items Net profit Net asset


四

2004 2003 2003.12.31 2003.12.31 Upon China accounting standard 26,653 15,925 209,267 165,569

Depreciation -4,167 -1,108 14,447 18,614 Tax adjustment —— -5,936 —— — —

Variation on related transaction 8,590 9,086 —— — — Variation on equity investment -2,897 -10,649 -13,546 -10,649 Payable account not needed to be

paid 6,893 — — —— — —

Minor shareholders’ equity -57 518 461 518 Other income 1,562 1,997 518 518 Deferred tax 1,996 1,993 -1,996 -1,996

On IAS 38,573 11,799 210,629 172,056

(IV) Movement of shareholders’ equity (in thousand shares and RMB’000)

Items Capital share

Capital reserve

Surplus reserve

Incl. Public welfare

Profit not distributed

Total of shareholders’ equity

At the beginning of term

477,500

507,349

125,686

24,654

-938,479 172,056

Increased this term 38,573 38,573

Decreased this term 0

At the end of term

477,500

507,349

125,686

24,654 -899,906 210,629

Causation of the movement: The increasing of profit not distributed was caused by the profit of the Company in

current year.


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III. Particulars About the Capital Share and Shareholders

(I) Changes in share capital

In Shares

Changes（+、-）

Before the

change Share

Allot

Bonus

share

Carried

over

from

public

welfare

New

issuin

g

Other Sub-t

otal

After the

change

I. Non-negotiable shares

Incl. State-owned shares 357,500,000.00 0 0 0 0 0 0 357,500,000.00

Total of non-negotiable shares 357,500,000.00 0 0 0 0 0 0 357,500,000.00

II. Negotiable shares

B shares 120,000,000.00 0 0 0 0 0 0 120,000,000.00

Total of negotiable shares 120,000,000.00 0 0 0 0 0 0 120,000,000.00

III. Total of capital shares 477,500,000.00 0 0 0 0 0 0 477,500,000.00

(II) Share placing and listing

1. The Company did not issue new shares and derived securities in the previous three years by the end of the report

term.

2. There was no change of the total shares and share structure resulting from bonus shares, capitalization of common

reserve fund, share allotment, issue of new shares, takeover and merger, conversion of convertible bonds into shares,

capital reduction, listing of employees’ shares or other reasons.

3. The Company does not have employees’ shares.

(III) Particulars about principal shareholders

1. The total number of shareholders by the end of report term was 20,998.

2. Particulars about the shareholding of the top ten shareholders:

No. Name of the shareholders Share portion

（%）

Share held at the

end of year

Share type


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1 Jianshe Industrial (Group) Co., Ltd. 71.13 339,625,000 Not negotiable

2 China North Industrial Shenzhen Co. 3.74 17,875,000 Not Negotiable

3 HARUHIKO SUZUKI 0.30 1,437,336 Current B shares

4 Shen Guo 0.28 1,317,336 Current B shares

5 SEUNG YEOL PARK 0.22 1,038,325 Current B shares

6 Tang Jing Yuan 0.19 914,500 Current B shares

7 Liu Bintian 0.16 766,603 Current B shares

8 Yang Yang 0.15 715,500 Current B shares

9 Lie Zhidong 0.15 696,000 Current B shares

10 Chen Yun’e 0.13 616,000 Current B shares

11 Li Jianping 0.13 603,935 Current B shares

12 Wang Qilin 0.13 598,429 Current B shares

Notes:

(1) There isn’t any associated relationship between the 1st shareholder and the other shareholders among the top-10 list.

None of them are regarded as “acting in concerts” in accordance with “The rules of information disclosure on change

of shareholding.” Shareholders beyond the top-10 list are unknown for their condition of “associated relationship” and

“acting in concert”.

(2) The shares held by Jianshe Industrial (Group) Co., Ltd. holding over 5% of the total shares were neither pledged nor

frozen. The proposed plan for changing of shareholding is as the follows:

Jianshe Group and China Military Equipment Group Co., Ltd. (referred to as “CMEG” hereinafter) entered the “Share

Equity Transferring Agreement” and the “Supplementary Agreement on Share Equity Transferring” on December 3rd 2004

and January 22nd 2005 respectively. According to the agreements, CMEG will accept all of the national-owned legal person

shares amounted to 339,625,000 shares (71.13% of the total capital shares) held by Jianshe Group.

The transaction of equity was basing on the net asset per share audited on December 31st 2003, the price was set by both

parties at RMB0.38. CMEG will be holding 339,625,000 of state-owned legal person shares of the Company, which takes

71.13% of the total capital shares, and will take the place of Jianshe Group as the controlling shareholder of the Company.

This transaction has been approved by National Assets Administrative Committee on March 9th 2005, and is subject to the

consent of China Securities Regulatory Commission, CMEG also need to be approved for being released for its full liability

of tender offer. (Progress of the transaction is available on December 7th, 2004, December 9th, 2004, and March 24th 2005

issues of Securities Times and Hong Kong Commercial Daily.)


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3. Particulars about the controlling shareholder

Jianshe Industry (Group) Co., Ltd., the contolling shareholder of the Company was incorporated on September 9th,

1995 with registered capital of RMB409.550 million. The legal representative is Mr. Nie Xiaofu. It is a state-owned

subsidiary of China Military Equipment Group Company. The business scope of the Group is : manufacturing and

distributing of motorcycle, measure instruments, civil guns, machinery, air and conditioner; distribution of general

machinery, electronic machinery, metal materials (excluding noble metals); repairing of home appliance; equipment

installation and repairing; export the products of the Group itself; import of machinery and equipment, spare parts, raw

materials that are required by the production of the Group itself. Operating of compensation trade.

In the report term, the practical controller of the Company is CMEG. CMEG was found on June 29th 1999 with registered

capital of RMB12,645.21 million, Mr. Xu Bin is the legal representative of the company. The company is involved in:

investment and administration of state-owned assets; Developing, designing, manufacturing, sales, maintaining, of artillery,

arms, missile, ammos, gun powder, rocket fuel, fuse, photon products, electric & photon-electric products, commanding &

controlling equipment, night-viewing equipment, dynamite engineering, anti-chemical equipment, simulating training

equipment, civil arms, machinery, automobile, measuring devices, fire protection equipment, environment protection

equipment, construction machinery, information & telecommunication equipment, chemical materials, medical equipment,

metal and non-metal materials & products, construction materials; warehousing and trucking.

4. There were no other corporate shareholders holding over 10% (inclusive) of the total shares of the Company in the report

term.

China Military Equipment Group Co.

State-owned Property Administrative

Committee

Jianshe Industry (Group) Co., Ltd.

Chongqing Jianshe Motorcycle Co., Ltd.


八

IV. Particulars about Directors, Supervisors, Senior Executives and Employees

(I) Current directors, supervisors and senior executives of the Company

1. Basic information

Name Position Sex Age Term Shares held

Chen Yongqiang Chairman of the Board M 51 2003.2―2005.5 0

Qiu Lin Director / deputize GM M 42 2002.5―2005.5 0

Xi Zhengxing Director, vice GM M 48 2002.5―2005.5 0

Li Zhencheng Director M 53 2002.5―2005.5 0

Bai Baolin Director M 56 2002.5―2005.5 0

He Tongwei Director M 57 2002.5―2005.5 0

Sun Fangcheng Independent director M 42 2002.5―2005.5 0

Meng Weidong Independent director M 41 2002.5―2005.5 0

Xu Mingyue Independent director M 42 2003.2―2005.5 0

Zhu Zhiyong Independent director M 40 2003.2―2005.5 0

Lu Hongxian Chairman of Supervisory Committee M 36 2002.5―2005.5 0

Chen Fengzhen Supervisor F 49 2002.5―2005.5 0

Gao Jun Supervisor F 55 2002.5―2005.5 0

Wu Changlin Supervisor M 49 2002.5―2005.5 0

Zhang Dongyan Supervisor F 50 2002.5―2005.5 0

Yu Guohua Vice GM M 41 2002.5―2005.5 0

Xu Yong Vice GM M 39 2002.5―2005.5 0

Lei Ming Vice GM M 47 2002.5―2005.5 0

Teng Feng Vice GM, Financial Supervisor M 33 2002.5―2005.5 0

Ju Bin Secretary of the Board M 37 2002.5―2005.5 0

Particulars about directors and supervisors take job position in any of the shareholders.

Name Take job in Position Job term since


九

Chen Yongqiang Jianshe Group Director, Secretary of the CCP committee, GM Dec. 2002

Qiu Lin Jianshe Group Vice GM Nov. 1997

Xi Zhengxing Jianshe Group Vice GM Nov. 1997

Li Zhencheng Jianshe Group Vice GM Feb. 2000

Lu Hongxian Jianshe Group Vice secretary of the CCP committee, Chairman of the worker’s union July 2001

Chen Fengzhen Jianshe Group Chief accountant April 2003

Gao Jun Jianshe Group Director of auditing office, vice director of auditing and inspection dept. Jan 1999 and Dec. 2001

Wu Changlin Jianshe Group Vice secretary of discipline committee, director of discipline office,

inspection division Dec. 1999 and Dec. 2991

(II) Major career history of the directors, supervisors and senior management and their jobs taken in

parties other than shareholders of the Company.

(1)Directors

Chen Yongqiang: Chairman of the Board. Former director of Chongqing ChangAn Company, the party secretary,

managing vice president and concurrently sell Company's general manager; Former Deputy secretary of Party

Committee of China Military Equipment Group Co. Ltd, southwest district, deputy director; Former deputy

director of Human Resource Department of China Military Equipment Group Co. Ltd. At present working as

Jianshe Group's Chairman of the Board, the party secretary, general manager.

Qiu Lin: Director. Former vice-minister of Jianshe Group's Manufacture Department. At present Jianshe group's

Deputy General Manager; Company's acting general manager.

Xi ZhenXin: Director. Former Chief engineer of Jianshe Group. At present Jianshe group's Deputy General

Manager; Company's Deputy General Manager.

Li ZhenChen: Director. Former factory director of Chongqing Pingshan Machinery Plant; Former Deputy

General Manager of the Company. At present Jianshe Group's Deputy General Manager of the Company.

Bai BaoLin: Director. Former Party Committee minister of Jianshe Group, Vice-Chairman of the trade union. At

present Chairman of the Company’s Trade Union, the Party branch secretary, and Division chief of general

department.

He TongWei: Director. Former Deputy General Manager of PinShan Taikai Carburetor Co. Ltd; Former Deputy

Secretary of the Discipline Inspection Commission of Jianshe Group, Chief of Regulation Division, chief of


十

Supervisory Department, Minister of Development Planning Department, Chief of Investment Planning Division.

At present Company's Deputy Secretary of the Party and concurrently vice factory director.

Sun FangCheng: Independent director. Successive Chongqing accountant's teaching and research chief of the

office of Industrial Management College, former deputy director and director of accountancy department. At

present vice-president of Technical College of Chongqing, and concurrently vice-president of Chongqing

Accounting Society, Chinese Accounting Society high industry science universities and colleges teaching

professional committee's deputy chairman, committee member of evaluation committee of senior accountant's

professional title of Chongqing, committee member of evaluation committee of the high title of institution of

higher education in Chongqing, Manage group's vice group leader of discipline, committee member of

Chongqing Philosophy social science awarding committee, member of Chongqing the Tenth-five Plan expert

team, independent director of Jialin industrial Co. Ltd, China(Group), Chongqing Three Gorges Paint Co. Ltd,

and Chongqing Oral Care Products Co. Ltd.

Meng Weidong: Independent director. At present, Professor, Doctoral supervisor and Standing Vice-president of

Business and Management Institute of Chongqing University. And concurrently the director of China Enterprise

Reform and Research Development Center of Chongqing University and Hong Kong Chinese University,

Deputy director of Securities Research institute of Chongqing University, Director of China Soft Science

Research Association, the editorial member of "Manage in China and Foreign Countries" magazine, Independent

director of Chongqing Department Store etc.

Xu Mingyue, independent director. Worked as assistant, lecturer and professor of Chongqing southwest politics

and law university. At present, professor and president of Law School of Chongqing university, Member of of

CPPCC and Standing Committee of Chongqing Shapingba district, committee of CPPCC, Chongqing, lawyer of

Chongqing Jinbo Law Firm, legal adviser of Chongqing Municipal Government, legislating and consulting

committee of Chongqing Municipal Standing Committee of the National People's Congress, A supervisor of

clean government of Intermediate Court of People's Court in Chongqing, A supervisor of clean government of

Chongqing People’s Prosecutors’s office. Independent director of Chongqing Jianshe Motorcycle Co. Ltd,

Chongqing Yu Development Co. Ltd and Chongqing Post Office Xinke Co. Ltd.

Zhu Zhiyong, independent director. Former Dean of Economics Department, Economic Politics and laws of

Southwestern Normal University, the visiting scholar of Economics School of Sichuan University. At present,

Professor and vice-president of Economics School of Southwestern Normal University; master degree

candidate's tutor of political economy; , director of Capital and Market Economic Academic Society, director of

Chongqing Three Gorges Immigration and Economic Development Research Association, director of Chongqing

Tax Society, director of China's Economic Development Research Association, the reserve person of

technological leader of the first academy in Chongqing (political economy), independent director of Jianshe

motorcycle Co. Ltd.


十一

(2) Supervisors

Lu Hongxian: Chairman of Supervisor Committee. Former cadre minister and General Manager Assistant of

Jianshe Group’s Party Committee Group. At present, deputy secretary of Party Committee, president of trade

union of Jianshe Group; Company's secretary of Party Committee.

Chen Fengzhen: Supervisor. Former vice general accountant of Jianshe Group; the manager of Goods and

Materials Supply Company of Jianshe Group; At present Jianshe Group's general accountant.

Gao Jun: Supervisor. Former Deputy Director of Jianshe Group’s Auditing Office. At present director of Jianshe

Group’s Auditing Office, Vice-minister of Audit Supervision Divison.

Wu Changlin: Supervisor. Former Deputy Director of Jianshe Group’s Discipline Committee Office, Deputy

Director of Supervisory Department. At present, Deputy Secretary of Jianshe Group’s Discipline Committee,

director of Discipline Office, director of Supervisory Department, deputy director of Audit Supervisory

Department.

Zhang DongYan: Supervisor. Former Deputy Director of Jianshe Group’s Financial Department, director of

Fund Management Division, Deputy Director of Auditing Office; Financial supervisor of Chongqing Jianshe

Sales Co. Ltd. At present, Deputy General Manager of Chongqing Northern Construction Foreign Trade Co. Ltd.

(3) Senior executives

Yu GuoHua: Vice General Manager. Former General Manager of Chongqing Jianshe Sales Co. Ltd; general

manager of Jianshe Engine Company; general manager's assistant of Jianshe Group. At present Company’s

Deputy General Manager.

Xu Yong: Deputy General Manger. Former general manager of Jianshe Group Electric Motor Car Company;

Deputy General Manger of Chongqing New Age Company; Deputy General Manger of Chongqing Jianshe

selling Co. Ltd; At present, Company’s Deputy General Manger.

Lei Ming: Deputy General Manger. Former general manager of Nanhai Jianshe Motorcycle Co. Ltd; Deputy

General Manger of Lingbo Jianshe Motorcycle Co. Ltd; Deputy General Manger of Chongqing Jianshe

Manufactory Co. Ltd; At present, Company’s Deputy General Manger.

Teng Feng: Deputy General Manger. Former Deputy director of Jianshe Group’s Financial Department. At

present, Company’s Financial director and Deputy General Manger.

Ju Bing: Secretary of Board of Directors. Former deputy director of Jianshe Group’s Construction Department,

deputy secretary of the Party Committee. At present, Company’s Secretary of Board of Directors

3. Annual remuneration


十二

(1) The Company determined the remuneration of directors, supervisors and senior executives according to the

indicators of economic liability and their performances.

(2) The total annual remuneration received by the current directors, supervisors and senior executives from the

Company was amounted to RMB864,880. 2 directors (not including independent directors) received

remuneration from the Company amounted to RMB98,500. The total amount of remuneration for the top 3

senior executives was RMB 174,1600. The annual subsidy of each independent director was RMB 20,000.

(3) The total number of the current directors, supervisors and senior executives of the Company is 22. 9 of them

received remuneration from the Company (not including independent directors). Number of persons receiving

annual remuneration of below RMB 50,000: 4 persons. RMB 50,000 - RMB 60,000: 5 persons. Chairman Chen

Yongqiang, directors Qiu Lin, Xi Zhengxing and Li Zhencheng, supervisors Chen Fengzhen, Gao Jun and Wu

Changlin received remuneration from Jianshe Group.

4. Quitting and assigning of directors, supervisors and senior executives

In the report term, Mr. Yan Qi resigned from his position of director for changing of job. The Board of Directors

nominated Mr. Ding Jiuru to take his place. Mr. Yu Jiang resigned from the position of vice general manager.

(III) Particulars about the employees

As of December 31, 2004, the Company had 3084 employees in total. In terms of specialty composition, it had

2803 production employees, 105 sales employees, 96 technicians, 45 finance employees and 35 administration

employees. In terms of educational status, the Company had 135 with university education or above, 143

graduates of colleges, 2860 graduates of technical secondary schools and high schools and 382 employees with

education of junior high school and below.


十三

V. Managerial Structure

(I) Status of company administration

The Company has being constantly improving its corporate administration structure，established modern enterprise

system and standardized its operation strictly according to the requirements of laws and regulations including the

Company Law， Securities Law，Standards of Administration of Listed Companies and Guiding Opinions on the

Establishment of Independent Director System at Listed Companies and in light of actual conditions of the Company.

The details of year 2004 are as the followings:

1. Independent in personnel

Jianshe Group – the controlling shareholder, entered the “Share Equity Transferring Agreement” with CMEG on

December 3rd 2004. After the completion of transaction, CMEG will become the controlling shareholder. None of

the directors, supervisors and senior management is taking any job in CMEG. There will be no cross personnel exist

between the controlling shareholder and the Company.

2. Situation of competition with related parties

For historical reason, competition has long existed between Jianshe Group and the Company. On December 29th

2004, the Company entered with Jianshe Group the “Asset Transferring Agreement”. Upon the completion of

acquisition, the core assets of motorcycle manufacturing, spare parts, sales and retained air-conditioner assets would

be transferred to the Company. Therefore competition will no longer exists between two of the parties.

3. Related transactions and providing of guarantee

(1) Due to historical reason and nature of the Company’s business, the Company has been related to Jianshe

Group and its related parties in supplying of labour force and energy. Upon completion of the Asset Transferring

Agreement, the related transactions with Jianshe Group will vary accordingly. On the one hand, Chongqing

Jianshe Yamaha Motorcycle Co., Ltd. (Chongqing JY) and Zhuzhou Jianshe Yamaha Motorcycle Co.,

Ltd.(Zhuzhou JY) become the controlled subsidiaries of the Company. Therefore the related transactions between

the Company and Chongqing JY will become the transaction between subsidiary and parent company. On the

other hand, the water and power supply and goods purchasing relationship between Chongqing JY and Jianshe

Group will become related transactions.

The related transactions between the Company and Jianshe Group were formed because of normal business

operation. These transactions are on market price basis and under the principle of both side fair and mutual benefit.

Examination and approving procedures of the Board or the Shareholders’ General Meeting are performed when

necessary and in viewing of protecting the benefits of investors.

(2) The Company provided Jianshe Group RMB170,000,000 of loan security during the period between


十四

December 1998 and December 2004. Whereas China Industrial & Commercial Bank Chongqing Yangjiaping

Branch issued “Notification of releasing Chongqing Jianshe Motorcycle Co., Ltd. from Rela ted Guarantee

Responsibility”, the responsibility for the loans occurred has been released thereof.

4. The Company further improved its Article of Association and bylaws to make them more practical on conducting

the business operation.

(II) The performance of the independent directors

For the year 2004, the independent directors have faithfully performed their duties, safeguarded the Company's

interests and really protect the rights and interests of middle and small investors strictly according to relevant laws

and regulations since they came into office. Within the scope of their powers and functions, they participated in the

decision making of the board of directors of the Company, found out the status of the Company's business operation

and management, put forward management proposals and actively promoted the Company's development. In the

report period, the independent directors attended 6 board meetings and attended 2 shareholders' general meetings as

nonvoting delegates, seriously examined proposals and expressed independent opinions on important matters

including related transactions, external investment, share transferring and the engagement or dismissal of directors.

The independent directors didn’t raised any objection on the proposals of the Board’s meeting nor other events other

than the Board meeting.

Name of Independent

Director

Times of

Board Meeting Presented Personally Entrusted others Absent (Times) Notes

Sun Fangcheng 6 4 2 0

Meng Weidong 6 4 2 0

Xu Mingyue 6 6 0 0

Zhu Zhiyong 6 5 1 0

(III) The separation of the Company from its controlling shareholder in respect of personnel, assets,

finance, organization and business

1. Personnel: The Company established independent functional department responsible for labour, personnel and

wage management and formed labor, personnel and wage management system. At present, as for some staff and

workers who originally signed long-term labour contracts with Jianshe Group, the Company has gradually modified

the labour contracts with them according to Labor Law of the People's Republic of China so as to further complete

the separation from its controlling shareholder in respect of personnel.

2. Assets: The procedure of transfer of property title of the houses and properties (original value of RMB93.447


十五

million and net va lue of RMB45.557 million at the end of report term) invested by the controlling shareholder

Jianshe Group into the Company as fixed assets according to national regulations when the Company was

established is being handled.

3. Finance: The Company has set up independent finance department, formed independent financial accounting

system, established and perfected financial control system and internal control measures, opened independent bank

accounts and paid taxes independently.

4. Organization: The Company has established an organizational structure that is independent of its controlling

shareholder. The organs of the Company are able to exercise their functions independently.

5. Business: The Company has independent and complete development, purchase, production and marketing system.

The Company is capable to perform business operation independently.

(IV) Rewarding and assessment system applicable to senior executives of the Company

The assessment of the senior executives of the Company is divided into daily assessment, quarterly assessment and

annual assessment. Daily assessment is conducted in the forms of interview and talk mainly for supervising the daily

work of senior executives. Quarterly assessment is mainly for appraising the status of quarterly fulfillment of the

duties of senior executives. Annual performance assessment is conducted according to the Company's regulations on

the annual performance assessment of senior executives. Their annual work performance is summarized according

to the result of assessment. The result of assessment will be timely communicated to senior executives so that they

can pertinently improve their work, give play to their strong points and make up their deficiencies in the next year.

Incentive system includes quarterly incentive and annual performance incentive. The result of quarterly assessment

of the senior executives by the assessment team of the Company is the basis for quarterly incentive. Annual

performance incentive is granted according to the status of the fulfillment of the indicators of economic liability and

the duties of senior executives.


十六

VI. The Shareholders’ General Meeting

The Company held one provisional shareholders’ general meeting and one annual shareholders’ general meeting.

1. The Board of Directors announced the holding of the 1st Provisional Shareholders’ General Meeting on the Jan 14th ,

2004 issues of Securities Times and Hong Kong Commercial Daily. The meeting was held at 9:00AM, Feb. 16th, 2004

in the 1st meeting room of the Company. Shareholders representing 358.6509 million shares attended the meeting,

takes 75.11% of the total 477.50 million shares of the Company. Among this, 339.625 million shares are representing

related shareholders, takes 71.3% of the total share capital, and 19.0259 million shares are representing non-related

shareholders, takes 3.98% of the total share capital.

(I) The proposal on transferring of creditor’s rights involved with Chongqing Jianshe Motorcycle Co., Ltd.,

Chongqing Jianshe Sales Co., Ltd. and Chongqing North Jianshe Imp. & Exp. Co., Ltd.

(II) The proposed related transaction between the Company and Jianshe Industrial (Group) Co., Ltd. on assets

interchange, and the proposal to the Shareholders’ General Meeting for the authorization to the Board of

Directors take the full responsibility on all relative processes of this transaction of assets.

The proposal was passed by 19,025,900 shares that held by non-related shareholders takes 100% of valid

voting rights on the meeting.

(III) The proposal of revising the Article of Association of the Company.

(IV) The proposal of changing of the certified public accountant.

The above resolutions can be found in Feb. 17th 2004 issues of Security Times and Hong Kong Commercial Daily.

2. The Board of Directors announced the holding of the Shareholders’ General Meeting 2003 on the April 19th, 2004

issues of Securities Times and Hong Kong Commercial Daily. The meeting was held at 9:00AM, May 20th 2004 in the

1st meeting room of the Company. Shareholders representing 357.50 million shares attended the meeting, takes 74.87%

of the total 477.50 million shares of the Company.

The following proposals were adopted by 100% votes of the shareholders representing 357.50 million shares on the

meeting.

(I) Business Report 2003 and Business Plan 2004 Result of voting: the proposal was passed by 357.5 million shares, which takes 100% of the total shares presented the meeting.

(II) Proposal of profit distribution for year 2003: Result of voting: the proposal was passed by 357.5 million shares, which takes 100% of the total shares presented the meeting.

(III) 2003 Annual Report of the Board; Result of voting: the proposal was passed by 357.5 million shares, which takes 100% of the total


十七

shares presented the meeting.

(IV) 2003 Annual Report of the Supervisory Committee; Result of voting: the proposal was passed by 357.5 million shares, which takes 100% of the total shares presented the meeting.

(V) 2003 Annual Report of the Company and the Summary; Result of voting: the proposal was passed by 357.5 million shares, which takes 100% of the total shares presented the meeting.

(VI) The proposal about the investment on establishing of A/C Company jointly with the Sales Company and the Trading Company, which are the controlled subsidiaries of the Company. Result of voting: the proposal was passed by 357.5 million shares, which takes 100% of the total shares presented the meeting.

(VII) The proposal of adjusts the allowance for independent directors to RMB20 thousand per year. Result of voting: the proposal was passed by 357.5 million shares, which takes 100% of the total shares presented the meeting.

The above resolutions were published on May 21st, 2004 issues of Securities Times and Hong Kong Commercial Daily.


十八

VII. Report of the Board of Directors

(I) Analyzing of overall business status for the report term

Basing on further researching on the historical environment and market trend for motorcycle products and auto

air-conditioner, the Company formed its overall business plan for next 6 years, which is “3-steps in 6 years”. For the

year of 2004, the Company carried forward implementation of the “9 Major Projects”, and realized the 1st step –

transforming from domestic player into an international competitor.

Backed by the technologies of Yamaha, the Company keep working on both of the domestic and overseas market, push

forward the construction of manufacturing bases in Chongqing, Shanghai and Guangdong. Through enhancing of

product structure adjustment and market developing, cutting of costs, and capital re-construction, the economical

operation quality and risk resistance capability was empowered constantly. The Company’s image was rebuilt in the

capital market, the motorcycle industry and the customers as well. These laid a good foundation for the consistency

and healthy of development.

As for year 2004, the gross asset was amounted to RMB2,532,216 thousand, which increased by 47.42% over the

previous year; gross liability was RMB2,315,13 thousand, which increased by 50.51% over the previous year; the

liability/asset ratio was 91.43% which increased slightly over the previous year; At the end of year 2004, the

shareholders’ equity was amounted to RMB210,629 thousand, which increased by 22.42% over the previous year,

including: share capital RMB477,500 thousand, capital reserves RMB507,349 thousand, surplus reserves

RMB125,686 thousand, and distributable profit of RMB-899,906 thousand. The Company has achieved major

business revenue of RMB1,850,975 thousand for the entire year, which increased by 33.67% over the previous year;

gross profit of RMB37,146 thousand, net profit of RMB38,573 thousand, income per share RMB0.08, net asset per

share RMB0.44 and net income/asset ratio of 18.31%.

1. Regarding the domestic market of motorcycle: The Company adopted the strategies of “emphasizing on lower

section and external” and “emphasizing on country side”, enforced the 4-forth process on personnel, commanding,

service and planning. The sales volume was increased significantly by carry out of general promotion actions in eight

territories including Sichuan province. Great attention was laid on construction of networks of spare parts sales and

after-service to enforce the core market and the weak point as well. For the year of 2004, the Company realized overall

sales of 743.9 thousand motorcycles in domestic market, which increased by 49.4% over the corresponding term of last

year at the same statistics range.

2. Regarding the international market of motorcycle: The Company enforced researching on overseas development

strategies and restructuring. Investment been made concentrating on major markets; Sales network construction was

enforced; Risk controlling capability was increased; Model JS250ATV has successfully passed the Europe Standard

Certification test, which laid a good foundation for exporting by great scale in 2005. For the year of 2004, the

Company has realized sales volume of 104.9 thousand motorcycles in international market, which decreased by 13.8%


十九

from the corresponding term of last year at the same statistics range.

3. Regarding the developing and production of motorcycles: The Company has accomplished developing of 28 brand

new models, 31 reforming models, and 2 types of engines. 20 of the models have achieved the requirement of band II

of national pollution regulations. JS250ATV has passed the Europe II standard test, which filled up the vacancy of the

domestic motorcycle industry and became one of the leading products. The developing process has been redesigned

and optimised. Investment on product developing has been completed both on software and hardware. “5-S”

equipment management process was enforced significantly; Equipment management was enhanced, the spare part

management database was improved which enables better controlling on spare parts management.

4. Regarding cost controlling: a risk controlling and cost alerting system, the supplying, production and sales chain was

further optimised. The purchasing and management process of raw materials, tools, and accessory parts was improved.

5. Regarding auto air-conditioner compressor: in year 2004, the quality management system of auto air-conditioner

compressor section passed the net version of ISO/TS16949 qualification. It ensures the Company to stay in the market

of auto parts.

(II) Operation in the report term

1. The scope of the Company's key business and its operation

The Company is mainly engaged in the final assembly of motorcycles, mechanical processing and sales of parts and

accessories of motorcycles and automobiles, manufacturing of moulds and jigs, standard mould racks, relevant

technical services, purchase and sales of household electrical appliances, raw materials and equipment.

(1) The distribution of income from key business and profit from key business of the Company in terms of upon

geographic and industries.

Geographical distribution: in RMB’000

Region Turnover Changed over previous year（％）

South-west

537,035 60,793

East

200,717 16,028


二十

Middle-south

234,384 24,604

North

352,692 31,033

North-east

129,268 13,660

North-west

99,420 10,006

Total of domestic

1,553,516 156,124

Asia

183,759 30,222

Africa

46,753 10,945

America

25,009 7,154

Europe/ Atlantic

41,938 13,089

Total of international

297,459 61,410

Total

1,850,975 217,534


二十一

Distribution on industries

Industry Turnover RMB’000 Major business profit RMB’000

Industry 1,850,975 217,534

(2) Market share of main products produced and sold by the Company

The major products of the Company take 6.24% of the overall domestic market share (data from “Window of Chinese

Motorcycle Industry”). Major products take more than 10% of the major business turnover are as the followings

Major products Turnover

RMB’000

Sales cost

RMB’000

Gross profit ratio

%

Motorcycle type JS125-27 142,840 119,223 16.53%

Motorcycle type JS125-5 178,742 154,508 13.56%

(3) For the report term, the major business turnover was increased by 33.67% over the previous year. This was caused

by the construction of sales network and adjustment of the marketing strategy; strengthen of production management

and developing of new products. Beside, Chongqing Jianshe Auto Air-conditioner Co., Ltd. and Shanghai Jianshe

Motorcycle Co., Ltd. were added to the consolidation range.


二十二

2. Operation and performance of main share -held subsidiaries and invested companies

Name of the Companies Equity held

Registered

capital

RMB’000

Capital scale

RMB’000 Major products or service

Net profit

RMB’000

Chongqing Jianshe Sales Co., Ltd. 100.00%

(indirect) 500 2,500 Sales of motorcycles and parts 47

Shenzhen South Mould Factory 100.00% 12,000 870,679 Design, manufacturing and sales of moulds and

standard mould carriers -10,226

Chongqing Jianshe Motorcycle

Manufacturing Co., Ltd. 100.00% 17,875 33,301 Manufacturing and sales of motorcycles 863

Chengdu Jianshe Motorcycle

Sales Co., Ltd. 100.00% 14,500 161,756 Sales of motorcycles -49

Chongqing Auto Air-conditioner

Co., LTd. 100.00% 160,000 384,939

Manufacturing, selling and service of auto

air-conditioner 5,636

Chongqing North Jianshe

International Trading Co., Ltd. 95.14% 60,378 340,416

International trading of products or

technologies (except if limited by the national

government)

39,736

New Times Motorcycle Co., Ltd. 62.50% 16,000 126,234 Sales of motorcycles and parts 170

Guangxi Jianshe Motorcycle

Sales Co., Ltd.

52.00%

(Indirect) 1,500 1,656 Sales of motorcycles 189

Shanghai Jianshe Motorcycle Co.,

Ltd. 51.00% 5,000 20,817

Manufacturing of motorbikes, scooters and

spare parts -2,092

Chongqing Pingshan Kaitai

Carburettor Co., Ltd. 49.00% 158,759 152,123

Manufacture and sales of motorcycle

carburetor and general engine and parts 1,735

3. Main suppliers and customers

The total amount of purchase from the top five suppliers accounted for 29.10% of the total purchase amount of the

year.

In the report period，the total amount of sales to the top five customers accounted for 23.24% of the total sales of the

Company.

4. Problems and difficulties occurred in operation and their solutions


二十三

Since China’s joining of WTO, giant international players enforced their business integration in Chinese market

depending on their advantage of technology and capital. Facing the severe market situation brought by price rising of

materials and parts, the Company was adjusting its strategic direction, and set out the “3-steps in 6 years” plan. The

Company will do its best to become an international player depending on its great productivity, good image, fully

developed service system, and good international partner.

5. As of December 31, 2004, the actual output and sales volume of motorcycles were 829,900 and 848,900 respectively.

Which increased by 39.15% over the previous term. The output of auto air-conditioner compressor of 302500 units and

sales of 310,200 units, which brought the Company the total sales income of RMB1,850,975,000 for the entire year.

(III) Investment in the report period

1. The utilization of raised funds in the report period

The Company neither raised funds nor used the funds previously raised in the report period.

2. Investment with non-raised funds in the report period

(1) The Company invested with its own fund into the technical reforming project of the general assembling workshop.

The budget was RMB21,736,000, and RMB19,392,000 practically paid in the report year. As of December 31, 2004,

the investment reached up to 89.22% of the budget.

(2) On May 15th 2004, the Company entered the Asset Restructuring Agreement (Draft) together with Shenjiang

Technologies and the shareholders of Shanghai Fufu Industry Co., Ltd. – Liu Fulong and Liu Fulin. As set out by the

agreement, the Company acquired 51% of the share equity of Shanghai Jianshe Motorcycle Co., Ltd. (former Shanghai

Fufu Industry Co., Ltd.).

(3) The Company entered the Asset Transferring Agreement with Jianshe Group on December 29th 2004. The

Company will use its own capital of RMB381,930,300 and partial account receivable of the controlled subsidiary –

Sales Company due from Jianshe Group to buy out 50% of share equity of Chongqing JY and Zhuzhou JY and assets

of air-conditioner and motorcycle developing/testing equipment, which originally held by Jianshe Group.


二十四

(IV) Financial status and operating results

Accounting indices 2004 2003 Increase/decrease

(±)

Causation of the

change

Total assets 2,532,216

1,717,668 814,548

Note 1

Shareholders’ equity 210,629

172,056 38,573

Note 2

Major business profit

252,675

138,237 114,438

Note 3

Net profit 38,573

11,799 26,774

Note 4

Net increase of cash and cash

equivalents 395,258

-10,514 405,772

Note 5

Note:

1. The increasing of total asset was because of the consolidation of Chongqing Jianshe Auto Air-conditioner Co., Ltd.

2. The increasing of shareholders’ equity was because of the profit making of the year and leading to increasing of

capital reserves.

3. The increasing of major business profit was because of the increasing of gross profit of the products.

4. The increasing of net profit was because of the increasing of major business profit of the year.

5. The increasing of cash and cash equivalents was because of the recovering of financial situation.

(V) Correcting of significant accounting error and retrospective adjustment:

There was not any significant accounting error or retrospective adjustment occurred during the year.

(VI) Influence on the business operation of the company from the changing of macro policies

1. The 8th industry policy target of State Development and Reformation Committee of The People’s Republic

of China is to create a fair competition and consolidated market environment, make a legal management

system structure of vehicle industry, set up a criterion of market behavior on vehicle industry field into the

variety economy body, formulate some large-scale vehicle group which is with international competition

ability via market competition and try to step into The Global 500 in 2010. Encourage vehicle manufacturing


二十五

organization increase the capability of R&D and technical creative, develop products with unique property

right actively, carry out brand operation strategy and establish a new vehicle manufacturing system that

making motorcycle manufacturer quit from the mechanism but enter into the new system. This policy point

out a clear direction form motorcycle industry’s development, to do this, the Company formulated a

development strategy called: Three Steps within Six Years and now it has been roundly achieved staggered

target.

2. According to the regulation of article [2003] 209 About the State Second Phase of Controlling Motorcycle

and Civil Use Motor-Lorry’s Emission Standard Announcement which is issued by the State Environmental

Protection General Bureau that all of the new product and imported motorcycle has to meet the standard of

GB 14622 – The Second Phase Manufacturing Consistency Inspection Emission Limitation Index. No of

manufacturing, import, sales and registration is allowed if the emission short of standard. The policy

increases the condition of manufacturing limitation for the motorcycle organization and gives aid to increase

technical standard for motorcycle industry. All of the motorcycle which is manufactured by the Company has

passed the examination.

3. The Customs' Regulations on Protection of the Intellectual Property Right of People's Republic of China

implementation policy enhanced the protection of motorcycle products’ Intellectual Property Right and the

competition of products’ Intellectual Property Right is becoming intensification. The Company just starts the

management of Intellectual Property Right protection and now the products which with Intellectual Property

Right is not so much so that the Company made a developing strategy on product Intellectual Property Right

and it has been roundly achieved staggered target at present.

4. According to the regulation of the industry changing article [2004]2881 About the Notice of Formulating

Vehicle Leave Factory Quality Pass Certificate Management which is issued associate with State

Development Revolution Committee, Ministry of Public Security that country will carry out supervise the

Quality Pass Certificate versus the leave factory vehicles, it included to make a criterion on QPC form and

content, motorcycle products has to has satisfied QPC which is issued by the manufacturer when the vehicle

leaves factory and the regulation will be take effect in 1st July 2005. This management system is good for

keep away rob, contraband and illegal registration of those assemble the vehicles and try the best to avoid tax

dodging and tax evasion at the same time, and it formulates the competition behaviors of motorcycle

organization good for the developing of motorcycle industry.


二十六

(VII) Business plan for the coming year

1. Business Target

About the Company’s development goal of “taking 3 steps in 6 years”, namely, “achieving the leap from

domestic market participant to domestic market competitor”, “achieving the leap from domestic market

competitor to domestic market leader” and “achieving the leap from domestic market leader to

international market competitor”. 2005 is the year with the start of the second step of “taking 3 steps in 6

years”. In order to achieve the development goal, the Company plans to manufacture and sell 1,010,000

motorcycles and the sales income will be 2.7 billion yuan. Moreover, the Company plans to produce and

sell 520,000 air cond itioner compressors and the sales income is 280 million yuan.

2. A campaign of “achieving a gold, doing well in three major campaigns and offering nine supports” to

ensure thorough implementation of the Company’s strategy and to accelerate achievement of the Company’s

goal of “taking 3 steps in 6 years”. The details are as follows:

(1) Implementing the scientific development view in an all-round way, making three major campaigns well

and achieving the goal of the whole year.

Do well in market and sales. The Company must improve the quality of the network, expand the

quantity of the sites and promote the market ability in an all- round way by means of making our

products more competitive.

Do well in development of science and technology. The Company will establish technological

innovation system with the core of the technology center of state cognized enterprise; put new process

of product research and development in practice, set up outlay budget of science and technology input

and supervisory system of using of science and technology outlay and ensure smooth development of

science and technology. This year the outlay put in science and technology will be 3% higher than sales

income and the value of new products will be more than 58% of sales income of the Company.

Do well in economic efficiency. The efficiency of the Company must be improved by reducing the cost.

That is to say, the cost can be reduced from changing of concept, time, management, process and

technology. The efficiency must be improved by strengthening management of joint or cooperative

companies.

(2) Implementing the scientific development view in an all- round way and offer nine supports.

Strengthen management of comprehensive budget and offer financial support; Strengthen object

management and offer layout support; Implement project management and offer product support;


二十七

Strengthen sale management and offer market support; Implement process reforger and offer

organization support; Strengthen management of technology quality and offer manufacture support;

Strengthen digitization management and offer information resources support; Strengthen human

resources management and offer talent support; Strengthen the political and ideological work and offer

morale support.

(VIII) Routine work of the board of directors

1. The board of directors of the Company seriously exercised the functions and powers granted by the Articles of

Association of the Company and held 6 board meetings according to the status of production and operation of the

Company in the report year. The particulars are as follows:

(1) The 14th meeting of the 3rd term of Board was held on April 15th 2004. The followings are the resolutions.

① Business Report for 2003 and Business Plan for 2004;

② Proposal of profit distribution for year 2003:

③ 2003 Annual Report of the Board;

④ 2003 Annual Report of the Company and the Summary; (Attachment 1 and 2)

⑤ The proposal of requesting Shenzhen Stock Exchange to cancel the special treatment “*ST” on the Company. As

confirmed by Shenzhen Nanfang-Minhe CPA with auditors’ report Shen-Nan-Cai-Shen-Bao-Zi (2004) No.CA406,

the Company has realized net profit of RMB15,925,000. The auditors’ report is a report without qualified opinion.

Currently the Company is requesting the relative department to cancel the “stock suspension alert” on the company.

This is subject to the approval of the relative department.

⑥ The proposal about the investment on establishing of A/C Company jointly with the Sales Company and the Trading

Company, which are the controlled subsidiaries of the Company.

⑦ The proposal of adjusts the allowance for independent directors to RMB20 thousand per year.

⑧ The proposal of holding the Shareholders’ General Meeting 2003 at 9:00AM, May 20th, 2004 in the No. 1 meeting

room of the Company.

The above I. II. III. IV. VI. and VII are subject to the examination of the Shareholder’s General Meeting.

The above resolutions are available in April 19th 2004 issues of Securities Times and Hong Kong Commercial Daily.

(2) The 15th meeting of the 3rd term Board of Directors of Chongqing Jianshe Motorcycle Co., Ltd. was held at

14:30PM, April 26th, 2004 in the No.1 meeting room of the Company. 8 of the 11 directors presented the meeting. 2 of

the absented directors entrusted other directors to vote on behalf of them. The following proposals were examined and

passed as resolutions:

① The 1st Quarterly Report of 2004;


二十八

② Mr. Yu Jiang will no longer take the position of Vice General Manager of the Company due to change of job.

The above resolutions are available in April 28th 2004 issues of Securities Times and Hong Kong Commercial Daily.

(3) The 16th meeting of the 3rd term of Board of Chongqing Jianshe Motorcycle Co., Ltd. was held at 9:00 AM, August 4th

2004. 10 of the 11 directors presented the meeting. The director who absented the meeting entitled another director to

exercise his right of voting. The following resolutions are examined and adopted on the meeting:

① The Semi-Annual Report 2004 and its summary version.

② The proposal of interim profit distribution of year 2004, which is no profit distribution or capitalizing of common

reserves will be implemented.

③ The proposal of acquiring Shanghai Fufu Industrial Co., Ltd. to establish Shanghai Jianshe Motorcycle Co., Ltd.

④ The proposal of Mr. Yan Qi no longer take the position of director of the Company.

⑤ The proposal of nominating Mr. Ding Jiuru as the candidate of director.

The above resolutions ④ and ⑤ are subject to the examination and approval of the Shareholders’ General Meeting.

The above resolutions are available in August 10th 2004 issues of Securities Times and Hong Kong Commercial Daily.

(4) The 17th meeting of the 3rd term of Board of Chongqing Jianshe Motorcycle Co., Ltd. was held at 9:00

AM, October 22nd 2004. 9 of the 11 directors presented the meeting. The director absent the meeting entitled

another director to exercise his right of voting. The following resolutions are examined and adopted on the

meeting:

① The 3rd Quarterly Report of 2004

② The Company will extend the contract with Shenzhen Nanfang-Minhe Certified Public Accountants as the auditor of

the Company for another one year. The payment for auditing service is RMB660 thousand.

The above proposals are subject to the examination and voting on the next shareholders’ general meeting.

The resolutions are available on October 26th 2004 issues of Securities Times and Hong Kong Commercial Daily.

(5) The 18th meeting of the 3rd term of Board was held on December 18th 2004, the “Report about China Military Equipment

Group’s acquisition of partial stocks of Chongqing Jianshe Motorcycle Co., Ltd. – to the shareholders of the Company” was

examined and passed on the meeting.

The resolutions are available on December 21st 2004 issues of Securities Times and Hong Kong Commercial Daily.

(6) The 19th meeting of the 3rd term of Board was held on December 29th 2004. “The proposal on acquisition of assets from

Jianshe Industry (Group) Co., Ltd. and related transactions” was examined and adopted by the meeting.

This proposal is subject to the approval of China Securities Regulatory Commission prior to the examination of the

Shareholders’ General Meeting.

The resolutions are available on December 31st 2004 issues of Securities Times and Hong Kong Commercial Daily.


二十九

All of the above resolutions are available for inquiring in the website assigned by Shenzhen Stock Exchange:

http://www.cninfo.com.cn.

2. The Company held one provisional shareholders’ general meeting and one annual general meeting in the report term.

All of the resolutions have been performed by the Board of Directors and completed before the ending of the report

term. Among them, the profit distribution plan of year 2003 was: Neither profit distribution nor capitalization of

reserves will be performed.

(IX) Profit distribution or capitalization of capital public reserves for the year 2003

As the financial report prepared in according with the accounting standard of China, the net profit of the Company for

year 2004 is amounted to RMB26,653 thousand, and the distributable profit is amounted to RMB-972,765 thousand;

well in according with the international accounting standard, the net profit for year 2004 is RMB38,573 thousand and

the distributable profit is RMB-899,906 thousand. In accordance with Article 202 of the Article of Association, no

profit distribution will be performed for the year of 2003. The proceeds will be used to cover the losses of previous

years.

(X) Special statement of the CPA about the situation of fund occupation by the controlling shareholder and other

related parties of the Company

Shenzhen Nanfang-Minhe CPA Co., Ltd. performed particular inspection on the situation of fund occupation by the

controlled shareholders of the Company and issued the following opinion:

Complying with the conditions set out by “Notification to listed companies about capital transaction with related parties and

offering of external guarantee” issued by China Securities Regulatory Commission and National State Property

Administrative Committee, the Company produced “The summary sheet of fund occupation by the controlling shareholder

and other related parties in year 2004” (the Summary Sheet) attached to this special statement.

Chongqing Jianshe Motorcycle Co., Ltd. prepared and disclosed “The summary sheet of fund occupation by the

controlling shareholder and other related parties in year 2004” (referred to as “Summary Sheet” hereinafter),

and shall undertake the obligations for the truthfulness, legality and completeness of the Table. We reviewed the

information carried in the Table against the accounting materials checked when we audit the 2004 financial statements,

and relative contents of the audited financial statements. We found no variation in any of the significant aspects.

Except for the related transactions carried in the 2004 financial statements, we performed no extra auditing procedures

or other procedures on any of other information carried in the Table.

For better comprehending of the situation of fund occupation by the controlling shareholder and other related parties of

Chongqing Jianshe Motorcycle Co., Ltd. in 2004, the Table is suggested to be read with reference to the financial

statements which has already been audited in the mean time.

Attachment: Chongqing Jianshe Motorcycle Co., Ltd. - the table of overall situation of fund occupation by the


三十

controlling shareholder and other related parties in year 2004.

建设摩托 2003 Annual Report (International)

21

Chongqing Jianshe Motorcycle Co., Ltd. The summary sheet of fund occupation by the controlling shareholder and other related parties in year 2004

Prepared by Chongqing Jianshe Motorcycle Co., Ltd. In RMB’000

Name of the related parties Relationship Accounting subject At the beginning

of year

Increased this

year

Decreased this

year

At the end of

year

Way of

returning

Property of the fund

occupation Note

Jianshe Industry (Group) Co., Ltd. Controlling shareholder Other account

receivable 205,734 4,224,987 4,172,421 258,300

Cash,

non-cash

Operational ①

Jianshe Industry (Group) Shanghai

Partnership Company

Partnership of the controlling

shareholder

Account receivable 16,768 — 16,648 —

Non-cash Operational ②

Chongqing Jianshe Casting Factory Subsidiary of the controlling

shareholder

Account receivable 7,079 — 7,079 —

Non-cash Operational ③

Chongqing Jianshe Vehicle A/C Co.,

Ltd.

Subsidiary of the controlling

shareholder

Other account

receivable — 10,600 — 10,600

Operational ④

① According to the Share Equity Transfer Agreement which is signed in Dec. 3rd 2004 and the Share Equity Transfer Complementarities Agreement which is signed in

Jan. 22nd 2005 by Jianshe Industry (Group) Ltd (hereafter referred as to Jianshe Group) and China Military Equipment Group (hereafter referred as to Bing Zhuang

Group)that Jianshe Group transferred its 339,625,000 State-own corporate shares to Bing Ling Group, the above transfer has agreed by Asset Management Committee

of State Department on Mar. 9th 2005 and now submitting to China Securities Regulatory Commission for discussion. Bing Zhuang Group will become the holding

shareholder of the Company, because of Bing Zhuang Group 100% holding the share of Jianshe Group that the related party relationship of Jianshe Group will become

the subsidiary company of holding shareholder after the above procedure finished. The Company will still play a role as holding shareholder of Jianshe Group up to

Dec. 31th 2004. The account receivable from Jianshe Group is increased form RMB2,05,734,000 in the beginning of the year to RMB2,58,300,000 at the end of the


三十二

year, all becomes the increase of current operational account receivable and the Jianshe Group planning to discharge arrearage in 2005.

② The account receivable form Jianshe Industry (Group)'s age of account has up to more than 3 years and the Company has drawn 50% bad debt provision, the Company

has transferred to Jianshe Group according to evaluation value on Dec. 2004, the current account has transferred into other current assets for calculation and the related

transfer procedure is in the process.

③ Chongqing Jianshe Casting Factory has been logout legal person qualification and will transfer the above creditor’s rights agreement to Jianshe Group.

④ Chongqing Jianxing Mechanism Manufacturing Ltd. is the parts supplier to the Company, the above arrearage become provisional operation occupation and

RMB7,000,000 has been transferred to Jianshe Group on Feb. 2005.


33

(XI) Independent opinions and special statements of the independent directors on the executing of the regulations set by Zheng-Jian-Fa [2003]56 about offering of external guarantees.

In according with the document Zheng-Jian-Fa [2003]56. titled “The notifications to listed companies

about standardizing of monetary transactions with related parties and offering of external guarantees”

(shown as “the Notification” hereinafter) issued by China Securities Regulatory Commission, as the

independent directors of the Company, we performed careful and responsible inspection on the

Company’s situation of external guarantees and executing of the regulations set out by the Notification.

The followings are the statements on the relative issues:

The Company has provided Jianshe Industry (Group) Co., Ltd. (shown as “Jianshe Group” hereinafter)

guarantee for bank loans amount to RMB170 million for the term of December 1998 to December 2004.

Whereas China Industrial & Commercial Bank Chongqing Yangjiaping Branch issued “Notification of

releasing Chongqing Jianshe Motorcycle Co., Ltd. from Related Guarantee Responsibility”, the responsibility

for the loans occurred has been released thereof.

Ended December 31 2004, the account receivable due to Jianshe Group has increased from

RMB205,734,000 (at the beginning of the year) up to RMB258,300,000. All of these were operational increasing

of receivables. Jianshe Group promised to clear the debt within year 2005.

We carefully analysed the “Special statement of the CPA about the situation of fund occupation by the

controlling shareholder and other related parties of the Company” and acknowledge that it has frankly

reflecting the debts due to controlling shareholder. We hope Jianshe Group will fulfil its promise seriously.


34

VIII. Report of the Supervisory Committee

(I) Meetings of the Committee

In the report term, the Supervisory Committee held 6 meetings. The followings are the details:

1. The 13th meeting of the 3rd term of committee was held on April 15th, 2004, the following proposals were

examined and passed:

① Business Report for 2003 and Business Plan for 2004;

② Proposal of profit distribution for year 2003:

③ 2003 Annual Report of the Board;

④ 2003 Annual Report of the Supervisory Committee;

⑤ 2003 Annual Report of the Company and the Summary;

⑥ The proposal of requesting Shenzhen Stock Exchange to cancel the special treatment “*ST” on the

Company.

⑦ The proposal about the investment on establishing of A/C Company jointly with the Sales Company and

the Trading Company, which are the controlled subsidiaries of the Company.

The above resolution IV is subject to the examination of the Shareholders’ General Meeting.

2. The 14th meeting of the 3rd Supervisory Committee was held on April 26th 2004. The 1st Quarterly Report of 2004 was examined and adopted by the meeting.

3. The 15th meeting of the 3rd term of Supervisory Committee of Chongqing Jianshe Motorcycle Co., Ltd. was held on August 4th 2004 in the 1st meeting room of the Company. 4 of the 5 supervisors presented the meeting. The absent supervisor entitled another supervisory to exercise his right of voting. The following proposals were examined and adopted:

① The Semi-Annual Report 2004 and its summary version.

② The proposal of acquiring Shanghai Fufu Industrial Co., Ltd. to establish Shanghai Jianshe Motorcycle

Co., Ltd.

③ The proposal of acquiring the equity of Shanghai Fufu Industry Co., Ltd. and investing on establishing

of Shanghai Jianshe Motorcycle Co., Ltd.

4. The 16th meeting of the 3rd term of Supervisory Committee was held on October 22nd 2004 The following proposals were examined and adopted:

① The 3rd Quarterly Report of 2004

② The Company will extend the contract with Shenzhen Nanfang-Minhe Certified Public Accountants as

the auditor of the Company for another one year. The payment for auditing service is RMB660

thousand.


35

5. The 17th meeting of the 3rd Supervisory Committee was held on December 18th 2004, the “Report

about China Military Equipment Group’s acquisition of partial stocks of Chongqing Jianshe Motorcycle

Co., Ltd. – to the shareholders of the Company” was examined and passed on the meeting.

6. The 18th meeting of the 3rd Supervisory Committee was held on December 29th 2004. “The proposal

on acquisition of assets from Jianshe Industry (Group) Co., Ltd. and related transactions” was examined

and adopted by the meeting.

(II) Independent opinion of the Supervisory Committee:

1. Operation According to the Law

In the opinion of the Supervisory Committee, the Company conducted its operation in a stadandardized way,

implemended various resolutions in a practical way, the decision-making procedures complied with the

relevant provisions of the PRC Company Law and the Articles of Association of the Company; the Company

established complete internal control system; directors and senior executives did their jobs with due

diligence in a work-respecting and honest way, and performed no action against the laws, regulations, the

Articles of Association or harmful to the interest of the Company.

2. Financial Inspection

The Supervisory Committee performed inspections on the execution of financial regulations and the

financial situation of the Company. In the opinion of the Supervisory Committee, the Auditor’s Report truly

reflected the Company’s financial position and operation result of the year.

3. Supervision on the utilizing of fund raised through share placing

The fund raised in the past years hasn’t been used in the report term. The balance of the fund has been

deposited in the bank and carried over to the arrangement of year 2005.

4. Acquisition and placing of assets

The Company entered the Asset Transferring Agreement with Jianshe Group on December 29th 2004. The

Company will use its own capital of RMB381,930,300 and partial account receivable amounted to

RMB52,210,800 of the controlled subsidiary – Sales Company due from Jianshe Group to buy out 50% of

share equity of Chongqing JY and Zhuzhou JY and assets of air-conditioner and motorcycle

developing/testing equipment, which originally held by Jianshe Group. This significant acquisition is a

related transaction which will benefit the Company in a long term and harmed no interest of other

shareholders of the Company, especially the interest of middle-small shareholders and non-related

shareholders. The transaction was on fairness and equal exchange basis and proceeded through legal process

without under-table trade.


36

5. Related transactions

In the report term, the Company conducted related transactions with Jianshe Group and its subsidiaries in the

business operation. The transactions are fair and on base of market price. It harms no interest of the

Company or the shareholders.


37

IX. Significant Events

(I) Material law suit or arbitration in the report term.

1. The Company involved in no significant lawsuit or arbitration event in the report term.

2. Material lawsuit and arbitration with has not been closed yet:

Lawsuit with due to Hebei Renqiu Tri-motorcycle Co., Ltd. about sole agent. This company raised the

lawsuit in Hebei Changzhou Middle Court against the Company on April 18 2001. Currently the

secondary trial has been closed. Henan High Court issued the “Civil Judgement”

(2002)Ji-Jing-Yi-Zhong-Zi No.6 on April 22, 2002 to order the Company to pay RMB1,185 thousand to

Hebei Renqiu Tei-motorcycle Co., Ltd. and undertake the court charge RMB10.5 thousand. The Company

has requested for retrial to Hebei High Court. The request has been accepted and currently under trial

supervise procedure.

3. Statement on the execution of significant lawsuits and arbitrations which has already been closed:

(1) Anhui Provincial Military Industry Supplying Co. (Anhui Co.) owes the Company payment of

RMB2,245 thousand. The Company sue to Chongqing Jiulongpo District Court on March 25, 2002

against this company. The Company won in the 1st instance, but Anhui Co. is planning to appeal again.

But because they didn’t make the payment for court charge, the 1st Middle Court of Chongqing

determined the effective of the conclusion of the 1st instance. In according with the judgement, the

Company request for the compulsive execution on the defendant’s property and conducting evaluation

on the property of the defendant. But this company has no property to be executed. The Company

obtained credit execution certificate on June 20th 2004.

(2) Chongqing Jiulongpo Hongchang Company (Hongchang Co.) owes the Company of RMB33,484

thousand for purchase payment. The Company sued to Chongqing High Court on September 27, 2001.

The court issued the “Civil Mediation Letter” (2001)Yu -Gao-Fa-Min-Chu-Zi No.18 on December 12,

2001. Till present, Hongchang Co. has made the payment of RMB1,190 thousand to the Company,

and the rest of RMB32,294 thousand is under execution. No further payment been made during the

report term.

(3) Chongqing Fenghuang Industrial Company owes the Company RMB6,885 of purchase payment. Till

present the balance of RMB3,600 thousand still not been disbursed. The Company applied to the 1st

Intermediate Court of Chongqing in April 2004 for execution on force. It is getting through the

procedure at present.

(4) Chongqing Fenghuang Industrial Company owes the Company RMB6,885 of purchase payment. Till

present there still a balance of RMB3,600 thousand not been disbursed. The Company requested to

the No.1 Middle Court to undertake compulsory execution. It is under processing at present.


38

(II) Asset acquisition, takeover or merger occurred in the report term.

On February 29th 2004, the Company exchanged with the account receivable (book value of

RMB68,581,000, evaluated value of RMB67,170,000 for the air-conditioner assets (book value of

RMB70,835,000, evaluated value of RMB67,100,000) of Jianshe Group. The transaction price was basing

on the evaluation result provided by public accountants.

The Company acquired 51% of the share equity of Shanghai Jianshe Motorcycle Co., Ltd. (former Shanghai

Fufu Industry Co., Ltd.) with RMB6,630,000.

(III) For details of the significant related transactions please go to the notes to the financial statements.

(IV) Important contracts and their execution

1.The events concerning the trusteeship, contracting or lease of assets in which the Company was involved

In 2003, the Company continued to lease fixed assets to Jianshe Group. This leasing business involved

original value of fixed assets of RMB273,689,000. Annual rental was RMB 24,129,000. The accumulated

net income was RMB 7,984,000.

2.Material guarantee

In the report period, the Company has been released from the joint liability assumed for the guarantee to

Jianshe Group for the loan of RMB 170 million.

3.In the report period, the Company did not entrust any other party to management its cash assets. It does not

plan to do so in the future.

(V) None of the shareholders who are holding more than 5% of the share equity of the Company has conducted any commitment event.

(VI) Engaging and dismissing of CPAs

The 17th meeting of the 3rd Board of Directors decided on October 22nd 2004 that Shenzhen Nanfang-Minhe

CPA will continue to be engaged as the accountant for year 2004. The total fee will be RMB660 thousand. This

has been approved by the shareholders’ general meeting. Till year 2004, Shenzhen Nanfang-Minhe CPA has

been the accountant of the Company for successively 2 years.


39

(VII) None of the Company, its Board of Directors or its directors was under investigation, administrative punishment or public criticise by CSRC or public condemn by stock exchange in the report period.

(VIII) Significant events that have been disclosed in the report term.

1. Jianshe Group and China Military Equipment Group Co., Ltd. (referred to as “CMEG” hereinafter) entered

the “Share Equity Transferring Agreement” and the “Supplementary Agreement on Share Equity Transferring”

on December 3rd 2004 and January 22nd 2005 respectively. According to the agreements, CMEG will accept all

of the national-owned legal person shares amounted to 339,625,000 shares (71.13% of the total capital shares)

held by Jianshe Group.

The transaction of equity was basing on the net asset per share audited on December 31st 2003, the price was

set by both parties at RMB0.38. CMEG will be holding 339,625,000 of state-owned legal person shares of the

Company, which takes 71.13% of the total capital shares, and will take the place of Jianshe Group as the

controlling shareholder of the Company.

This transaction has been approved by National Assets Administrative Committee on March 9th 2005, and is

subject to the consent of China Securities Regulatory Commission, CMEG also need to be approved for being

released for its full liability of tender offer. (Progress of the transaction is available on December 7th, 2004,

December 9th, 2004, and March 24th 2005 issues of Securities Times and Hong Kong Commercial Daily.)

2. In viewing of improving the capital quality and market competition ability, the Company entered the Asset

Transferring Agreement with Jianshe Group on December 29th 2004. The Company will use its own capital of

RMB381,930,300 and partial account receivable amounted to RMB52,210,800 of the controlled subsidiary –

Sales Company due from Jianshe Group to buy out 50% of share equity of Chongqing JY and Zhuzhou JY and

assets of air-conditioner and motorcycle developing/testing equipment, which originally held by Jianshe Group.

The resolutions of the Board regarding this related transaction was disclosed on the December 31st 2004 issues

of Securities Times and Hong Kong Commercial Daily.


40

X. Financial Statements

(I) Financial Statements (attached)

(II) Auditors’ Report (attached)

(III) Notes to the Financial Statements (attached)


41

XI. Documents for Reference

1. Text of the Annual Report with the signature of the Chairman of Board.

2. Financial Statements with signatures and seals of the legal representative, Chief Accountant and

person in charge of accounting affairs;

3. Original copy of the Auditors’ Report under the seal of the accounting firm and signed by and under

the seal of certified accountants.

4. Originals of all documents and manuscripts of Public Notices of the Company disclosed in public in

the newspapers as designated by China Securities Regulatory Commission.

5. Special presentation of the CPA about the situation of fund occupation by the controlling shareholder

and other related parties of Chongqing Jianshe Motorcycle Co., Ltd. in the year of 2004.

The above documents are available in the secretary office of the Board of Directors of Chongqing Jianshe

Motorcycle Co, Ltd.

Note: This report has been prepared both in Chinese and English, in case of any conflict in understanding

between the two versions, the Chinese version shall prevail.

The Chairman of the Board

Chongqing Jianshe Motorcycle Co., Ltd.

March 29th, 2005


42

CHONGQING JIANSHE MOTOCYCLE CO., LTD.

(Incorporated in The People’s Republic of China)

Reports and Financial Statements

For the year ended 31 December, 2004


43

44

CONTENTS

Items Page(s)

AUDITORS’ REPORT 1

CONSOLIDATED INCOME STATEMENT 2

CONSOLIDATED BALANCE SHEET 3

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 4

CONSOLIDATED STATEMENT OF CASH FLOWS 5-6

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7-30

1

马施云深圳南方民和

会计师事务所 Moore Stephens Shenzhen Nanfang Minhe

Certified Public Accountants

8/F., Electronics Building No. 2072 Shennan

Zhong Road, ShenZhen

深圳市深南中路 2072 号电子大厦 8 楼

Tel 电话: (0755)8378 1017

Fax传真: (0755)8378 0119

REPORT OF THE AUDITORS

TO THE SHAREHOLDERS OF CHONGQING JIANSHE MOTORCYCLE CO., LTD.

(Incorporated in The People’s Republic of China)

We have audited the accompanying consolidated balance sheet of Chongqing Jianshe Motorcycle Co.,

Ltd. (‘the Company”) and its subsidiaries (collectively referred to as “the Group”) as of 31 December, 2004 and the related consolidated income statement, consolidated statement of cash flows and changes in equity for the year then ended. These financial statements set out on pages 2 to 30 are the

responsibility of the Group's management. Our responsibility is to express an opinion on these 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable

basis for our opinion.

In our opinion, the consolidated financial statements present fairly, in all material respects, the

financial position of the Group as of 31 December, 2004 and the results of the operations and cash flows of the Group for the year then ended and in accordance with International Financial Reporting Standards.

MOORE STEPHENS SHENZHEN NANFANG MINHE

2

Certified Public Accountants [29] March, 2005

3

CHONGQING JIANSHE MOTORCYCLE CO., LTD.

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER, 2004

Notes 2004

RMB’000

2003

RMB’000

Turnover, net 4、5 1,850,975 1,384,716

Cost of sales (1,598,300) (1,246,469)

Gross profit 252,675 138,247

Other income, net 6 43,236 39,246

Selling, general and administrative expenses (221,153) (120,006)

Provision for bad and doubtful debts (11,298) (14,576)

Profit from operations 7 63,460 42,911

Finance costs 8 (48,442) (41,103)

Investment income, net 9 21,946 10,784

Share of profit/(losses) of associates 182 (892)

4

Profit before taxation 37,146 11,700

Taxation 10 1,996 1,993

Profit after taxation 39,142 13,693

Minority interests (569) (1,894)

Net profit for the year 38,573 11,799

Earnings per share 11 RMB0.081 RMB0.025

(The notes on pages 7 to 30 form an integral part of these financial statements)

5


CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER, 2004

Notes 2004

RMB’000

2003

RMB’000

NON-CURRENT ASSETS

Property, plant and equipment 12 435,088 425,586

Land use right 13 3,613 -

Interests in associates 14 72,096 71,912

Other investment 15 12,912 12,912

Other assets 16 52,806 76,931

576,515 587,341

CURRENT ASSETS

Inventories 17 270,478 239,871

Notes receivable 29,983 10,688

Accounts receivable, prepayments and other receivables 18 464,509 467,795

Tax recoverable 12,293 12,293

Pledged deposits 27 720,150 336,650

Cash and bank balances 458,288 63,030

1,955,701 1,130,327

6

CURRENT LIABILITIES

Notes payable 27 1,002,005 423,075

Accounts payable, accruals and other payables 601,861 479,708

Short-term loans 19 711,270 635,400

2,315,136 1,538,183

NET CURRENT LIABILITIES (359,435) (407,856)

MINORITY INTERESTS 6,451 3,433

NON-CURRENT LIABILITIES

Long-term loans 20 － 2,000

Deferred tax liability 21 － 1,996

－ 3,996

210,629 172,056

SHAREHOLDERS’ EQUITY

Share capital 22 477,500 477,500

Reserves 23 (266,871) (305,444)

210,629 172,056

The financial statements on pages 2 to 30 were approved and authorised for issue by the Board of Directors on [29] March ,2005 and signed on its behalf by:

7

DIRECTOR DIRECTOR

8


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


Share capital Share

premium Revaluation

reserve

Statutory revenue reserve

Statutory common

welfare fund Discretionary reserve fund

Accumulated losses Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Balance as of

31 December, 2002 477,500 384,579 122,770 32,070 24,654 68,962 (950,278) 160,257

Net profit for the year - - - - - - 11,799 11,799

Balance as of

31 December, 2003 477,500 384,579 122,770 32,070 24,654 68,962 (938,479) 172,056

Net profit for the year - - - - - - 38,573 38,573

Balance as of

31 December, 2004 477,500 384,579 122,770 32,070 26,654 68,962 (899,906) 210,629

(The notes on pages 7 to 30 form an integral part of these financial statements.)

9


CONSOLIDATED STATEMENT OF CASH FLOWS


2004

RMB’000

2003

RMB’000

OPERATING ACTIVITIES:

Profit before taxation 37,146 11,700

Adjustment:

Provision for bad debts 11,298 14,576

Write-back of provision for obsolete inventory (19,628) (52,259)

Depreciation 56,232 52,149

Loss/(gain) on disposal of property, plant and equipment 182 1,052

Write-back of impairment loss on property, plant and equipment - (3,020)

Share of (profit)/losses in associates (182) 892

Loss on disposal of associates - 114

Interest expenses 44,193 39,156

10

Interest income (21,946) (10,898)

Others - 1,049

Operating cash flows before movement in working capital 107,295 54,511

Increase in notes receivable (19,198) (8,133)

Decrease/(increase) in accounts receivable, prepayments and other

receivables

(60,223) (85,740)

Increase in inventories (10,979) (21,823)

Increase in notes payable 86,500 262,591

Increase in accounts payable, accruals and other payables 122,200 37,362

Cash generated from operations 225,595 238,768

Interest paid (44,193) (39,156)

Net cash generated from operations 181,402 199,612

11


CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)


2004

RMB’000

2003

RMB’000

INVESTING ACTIVITIES:

Interest received 21,946 10,898

Proceeds from disposal of an associate - 43

Increase in interests in subsidiaries (5,945) -

Increase in interests in associates - 79,605

Purchase of property, plant and equipment (54,771) (3,750)

Proceeds from disposal of property, plant and equipment 215 1,571

NET CASH (OUTFLOW ) / INFLOW FROM INVESTING

ACTIVITIES

(38,555) 88,367

FINANCING ACTIVITIES:

Increase in minority interest 2,961 2,867

Decrease in short term loan - (3,110)

Increase in notes payable 557,080 -

12

New bank loans 75,870 38,400

Increase in pledged deposits (383,500) (336,650)

NET CASH OUTFLOW FROM FINANCING

ACTIVITIES

252,411 (298,493)

INCREASE/ (DECREASE) IN CASH AND CASH

EQUIVALENTS

395,258 (10,514)

CASH AND CASH EQUIVALENTS AT 1 JANUARY 63,030 73,544

CASH AND CASH EQUIVALENTS AT 31 DECEMBER 458,288 63,030

(The notes on pages 7 to 30 form an integral part of these financial statements.)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER, 2004

13

1. ORGANISATION AND OPERATIONS

Chongqing Jianshe Motorcycle Co., Ltd. (“the Company”) was incorporated as a joint stock

limited company in the People's Republic of China (the “PRC) on 19 July, 1995. As part of the incorporation process, the company issued Domestically Listed Foreign Shares (“B shares”) to foreign investors by an international placing. The incorporation process, which took effect on 19

July, 1995, also involved a reorganisation carried out by the two promoters whereby (1) Jianshe Industries (Group) Corporation (“Jianshe Group”) injected certain of the assets and liabilities relating to its motorcycle business and (2) China North Industries Shenzhen Corporation

injected its equity interest in Shenzhen South Mould Factory (“Shenzhen South Mould”) into the Company. The company's B shares were listed on the Shenzhen Stock Exchange on 25 July, 1995.

The Company is principally engaged in the manufacture and sale of motorcycles and moulds. As of 31 December 2004, the Company directly owned equity investments in the following

subsidiaries:

Company Place of

incorporation Registered

capital

Percentage of equity interest

held Investment

amount Principal activities

RMB’000 % RMB’000

Jianshe Industries (Group) Corporation Sale Company

(“Jianshe Sales Company”)

Chongqing 12,000 100 12,000 Sale of motorcycles and components and provision of after sales service

Shenzhen South

Mould Factory (“Shenzhen South Mould”)

Shenzhen 17,875 100 17,875 Manufacture and sales of mould frames and moulds

Chongqing Jianshe Auto

Air-conditioner Co., Ltd.. Chongqing 160,000 100 160,000 Manufacture and sales of air

conditioner for motor car

Shanghai Jianshe Motorcycle Co., Ltd Shanghai 5,000 51 6,630 Manufacture and sales of motorcycles and components


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER, 2004

14

motorcycles and components

Chongqing Jianshing

Motorcycle Manufacturing Co., Ltd (“Manufacturing Company”)

Chongqing 14,500 100 14,500 Manufacture and sales of motorcycles and components

Guangxi Jianshe

Motorcycle Co., Ltd.

(“Guangxi Jianshe”)

Nanning, Guangxi 1,500 52(indirect) 780 Sale of motorcycles and

components

Chengdu Jianshe

Motorcycle Sales Co., Ltd.

(“Chengdu Jianshe”)

Sichuan, Chengdu 500 100(indirect) 500 Manufacture and sales of

motorcycles and components

Chongqing North Jianshe

Import & Export Co., Ltd.

(“Import & Export Co.”)

Chongqing 60,378 95.14 60,226 Import and export of various products


22

2. BASIS OF PRESENTATION

These financial statements are presented in Reminbi since that is the currency in which the majority of the Group's transactions are denominated.

The financial statements of the Company for the year ended 31 December, 2004 were prepared in conformity with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standard Board. This basis of accounting differs from that used in the statutory accounts of the Group companies which were prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises in the PRC (“PRC GAAP”). Adjustments have been made to the statutory accounts of the Company to conform to IFRS, as if those standards had been applied consistently throughout the year.

The Group has net current liabilities as at 31 December, 2004. The financial statements have been prepared on the going concern bas is, as the holding company, Jianshe Industries (Group) Co.,LTD., has agreed to provide continuing financial support to enable the Group to meet its liabilities as and when they fall due in the foreseeable future, and has provided a guarantee for bank borrowings of the Group amounting to RMB454,990,000 (See note 25B(c)). The board of directors believe that it is appropriate to prepare the financial statements on the going concern basis.

3. PRINCIPAL ACCOUNTING POLICIES

The financial statements have been prepared on the historical cost convention, except for the revaluation of property, plant and equipment and certain financial instruments. The principal accounting policies adopted are set out below.

a) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to dominate the financial and operating policies of an investee enterprise so as to obtain benefits from its activities.

On acquisition, the assets and liabilities of a subsidiary are measured at their fair values at

the date of acquisition. The interest of minority shareholders is stated at the minority's p roportion

of the fair values of the assets and liabilities recognised.


十六

The results of subsidiaries acquired or disposed of during the year are included in the consolidated

income statement from the effective date of acquisition or up to the effective date of disposal,

as appropriate.


十七

3. PRINCIPAL ACCOUNTING POLICIES (continued)

a) Basis of consolidation (continued)

Where necessary, adjustments are made to the financial statements of subsidiaries to align the

accounting policies used with those used by other members of the Group.

All significant intercompany transactions and balances between group enterprises are eliminated on

consolidation.

b) Subsidiaries

A subsidiary is a company in which the Company holds, directly or indirectly, more than 50%

of the equity interest as a long-term investment and/or has the power to cast the majority of votes

at meetings of the board of directors or management committee.

c) Interests in associates

An associate is an enterprise over which the Group is in a position to exercise significant

influence through participation in the financial and operating policy decisions of the investee.

The results and assets and liabilities of associates are incorporated in these financial statements using the equity

method of accounting. The carrying amount of such investments is reduced to recognise any impairment in the value of individual investments. Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments.

Any excess (deficiency) of the cost of acquisition over (below) the Group’s share of the fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill (negative goodwill).

Where a group enterprise transacts with an associate of the Group, unrealised profits and losses

are eliminated to the extent of the Group's interest in the relevant associate, except where

unrealised losses provide evidence of an impairment of the asset transferred.


十八


d) Related parties

Parties are considered to be related if one party has the ability, directly or indirectly,

to control the other party, or exercise significant influence over the other party in making financial

and operating decisions. Parties are also considered to be related if they are subject to common

control or common significant influence.

e) Foreign currencies

Transactions in currencies other than Reminbi are initially recorded at the rates of exchange

prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such

currencies are retranslated at the rates prevailing on the balance sheet date. Profits and losses

arising on exchange are included in the profit or loss for the period.

f) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct

materials and, where applicable, direct labour costs and those overheads that have been incurred

in bringing the inventories to their present location and condition. Cost is calculated using the

weighted average method. Net realisable value represents the estimated selling price less all

estimated costs to completion and costs to be incurred in marketing, selling and distribution.

g) Property, plant and equipment

Properties used for production, rental or administrative purposes, or in the course of construction

for purposes not yet determined, are carried at cost less any identified impairment loss. Cost

includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance

with the Group's accounting policies. Depreciation of these assets commences when the assets are

ready for their intended use on the same basis as other property assets.


十九

Plant and equipment are stated at cost less accumulated depreciation and any impairment loss.


二十


g) Property, plant and equipment (continued)

Depreciation is charged so as to write off the cost or valuation of assets, other than land

and properties under construction, over their estimated useful lives, using the straight-line method,

on the following bases:

Types Terms Rates

Buildings 30—35 years 2.8—3.2%

Machinery and equipment 7—20 years 4.9—13.9%

Motor vehicles and other equipment 5—8 years 12.1—19.4%

Assets held under finance lease are depreciated over their expected useful lives on the same

basis as owned assets or, where shorter, the term of the relevant lease.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference

between the sales proceeds and the carrying amount of the asset and is recognised in income.

h) Investment property

Investment property, which is property held to earn rentals and/or for capital appreciation, is

stated at its fair value at the balance sheet date. Gains and losses arising from changes in the

fair value of investment property are included in the net profit or loss for the period in which

they arise.

i) Revenue recognition


二十一

Sales of goods are recognised when the significant risks and rewards of ownership of the goods

have been transferred to customers, the economic benefits associated with the transaction can be

received and the amount of revenue and costs can be measured reliably.

Service income is recognised when services are rendered.

Trademark income is recognised when the relevant agreement was signed and executed.

Interest income is accrued on a time basis by reference to the principal outstanding and at

the interest rate applicable.


二十二


j) Operating leases

Leases where substantially all of the risks and rewards of ownership of the assets remain with the

lessors are accounted for as operating leases. Rental income and expenses from operating leases are

included in the determination of income statement on a straight-line basis over the lease term. The machinery leased out by the Group is recorded in fixed assets.

k) Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net

profit as reported in the income statement because it excludes items of income or expense that are

taxable or deductible in other years and it further excludes items that are never taxable or deductible.

The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying

amount of assets and liabilities in the financial statements and the corresponding tax basis used

in the computation of taxable profit, and is accounted for using the balance sheet liability method.

Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred

tax assets are recognised to the extent that it is probable that taxable profits will be available

against which deductible temporary differences can be utilised. Such assets and liabilities are not

recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial

recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments

in subsidiaries and associates, and interests in joint ventures, except where the Group is able to

control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying a mount of deferred tax assets is reviewed at each balance sheet date and reduced to

the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.


二十三

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability

is settled or the asset realised. Deferred tax is charged or credited in the income statement, except

when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.


k) Taxation (continued)

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same

taxation authority and the Group intends to settle its current tax assets and liabilities on a net

basis.

l) Impairment

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible

assets to determine whether there is any indication that those assets have suffered an impairment

loss. If any such indication exists, the recoverable amount of the asset is estimated in order to

determine the extent of the impairment loss (if any). Where it is not possible to estimate the

recoverable amount of an individual asset, the Group estimates the recoverable amount of the

cash-generating unit to which the asset belongs.

Recoverable amount is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre -tax discount rate that reflects current market assessments of

the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately, unless the relevant asset is land or buildings other than investment property

carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.


二十四

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash -generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in

prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in

Which case the reversal of the impairment loss is treated as a revaluation increase.


二十五


m) Trade receivables

Trade receivables are stated at their nominal value as reduced by appropriate allowances for

estimated irrecoverable amounts.

n) Investments in securities

Investments in securities are recognised on a trade-date basis and are initially measured at cost,

including transaction costs.

At subsequent reporting dates, debt securities that the Group has the expressed intention and ability

to hold to maturity (held-to-maturity debt securities) are measured at amortised cost, less any

impairment loss recognised to reflect irrecoverable amounts. The annual amortisation of any discount

or premium on the acquisition of a held-to-maturity security is aggregated with other investment

income receivable over the term of the instrument so that the revenue recognised in each period

represents a constant yield on the investment.

Investments other than held-to-maturity debt securities are classified as either held for trading

or available-for-sale and are measured at subsequent reporting dates at fair value. Where securities

are held for trading purposes, unrealised gains and losses are included in net profit or loss for

the period. For available-for-sale investments, unrealised gains and losses are recognised directly

in equity, until the security is disposed of or is determined to be impaired, at which time the

cumulative gain or loss previously recognised in equity is included in the net profit or loss for

the period.

o) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those

assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.


二十六

All other borrowing costs are recognised in net profit or loss in the period in which they are incurred.


p) Trade payables

Trade payables are stated at their nominal value.

q) Cash equivalents

For the purpose of the consolidated cash flow statement, c ash equivalents represent short-term highly

liquid investments which are readily convertible into known amounts of cash and which were within

three months of maturity when acquired; less advances from bank repayable within three months from

the date of the advance.

4. TURNOVER, NET

Turnover represents the amount received and receivable for goods sold, less returns and allowances.

5. SEGMENTAL INFORMATION

As the group is principally engaged in the manufacturing and sales of motorcycles, no segmental information is presented.

The following table presents an analysis of the Group’s sales by geographical locations. In determining the Group’s geographical segments, revenues are attributed to the segments based on the location of the customers. No


二十七

geographical segment information regarding the assets of the Group is presented as all of the Group’s assets are located in the People’s Republic of China.

2004 2003

RMB’000 RMB’000

The People’s Republic of China 1,553,516 974,809

Other countries in Asia 183,759 239,848

Africa 46,753 127,899

Europe, Australia 41,938 20,229

Others 25,009 21,931

Total 1,850,975 1,384,716


二十八

6. OTHER INCOME, NET

2004 2003

RMB’000 RMB’000

Trademark income 11,500 10,259

Technology consultant fee income 3,200 3,200

Gain on disposal of property, plant and equipment (182) (1,052)

Operating lease income, net

7,984

14,973

Sales of materials 12,656 14,843

Accounts payable written off 6,893 -

Other income/(loss), net 1,185 (2,977)

43,236 39,246

7. PROFIT FROM OPERATIONS

Profit from operations have been arrived at after charging/(crediting):

2004 2003

RMB’000 RMB’000


二十九

Audit fee 1,657 760

Depreciation of property, plant and equipment 56,232 52,149

Write-back of provision for obsolete inventory (19,628) (52,259)

Provision for bad debts 11,298 14,576

Write-back of impairment loss on property, plant and equipment － (3,020)

Loss on disposal of property, plant and equipment, net 182 1,052

Staff costs 23,390 30,944

8. FINANCE COSTS

2004 2003

RMB’000 RMB’000

Interest expenses 44,193 39,156

Other 4,249 1,947

48,442 41,103


三十

9. INVESTMENT INCOME, NET

2004 2003

RMB’000 RMB’000

Interest income 21,946 10,898

Loss on disposal of associates － (114)

21,946 10,784

10. TAXATION

2004 2003

RMB’000 RMB’000

Deferred tax credit (note 21) (1,996) (1,993)

As the Company’s subsidiary Shenzhen South Mould Factory, was incorporated in Shenzhen, it is entitled to Enterprise Income Tax (“EIT”) at the rate of 15% according to the relevant regulations, while the Company and other subsidiaries of the Group are subject to EIT at the rate of 33% according to the local tax regulations

The charge for the year can be reconciled to profit/(loss) per the income statement as follows：

2004 2003


三十一

RMB’000 RMB’000

Accounting profit/(loss) 37,146 11,700

Expenses that are not deductible in determining taxable profit (8,330) (40,703)

Taxable profit 28,816 (29,003)

Offset losses brought forward from previous years (28,816) -

Deferred tax credit (1,996) (1,993)

Tax expense (1,996) (1,993)

11. EARNINGS PER SHARE

Earnings per share was calculated based on the consolidated net profit for the year ended 31 December, 2004 of RMB38,573,000 (2003: net profit for the year of RMB11,799,000) divided by 477,500,000 shares as at 31 December,

2004 (2003: 477,500,000 shares).


三十二

12. PROPERTY, PLANT AND EQUIPMENT

Construction in

progress Land and buildings

Investment properties

Machinery and equipment

Motor vehicles and other equipment Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Cost

At 1 January, 2004 146 113,801 35,497 793,296 9,939 952,679

Additions 6,031 5,362 - 112,496 7,147 131,036

Acquisition of subsidiary - 9,857 - 2,847 602 13,306

Disposals (4,556) - (35,497) (1,600) (196) (41,849)

At 31 December, 2004 1,621 129,020 - 907,039 17,492 1,055,172

Accumulated depreciation

and impairment

At 1 January, 2003: - 47,083

-

473,985 6,025 527,093

Additions - 3,102 - 88,889 1,574 93,565

Acquisition of subsidiary - 273 - 269 73 615

Disposals - - - (1,088) (101) (1,189)

At 31 December, 2003 - 50,458 - 562,055 7,571 620,084


三十三

Net book value

31 December, 2004 1,621 78,562 - 344,984 9,921 435,088

31 December, 2003 146 66,718 35,497 319,311 3,914 425,586

Land and buildings with net book value of RMB45,557,000 (2003: RMB48,472,000) was injected by Jianshe Group on incorporation. The transfer of ownership is still in progress.

The directors consider that the carrying amount of properties, plant and equipment approximates their fair value.

The Group did not earn any property rental income from its investment property leased out under operating leases.

(2003: RMB400,000).


三十四

13. LAND USE RIGHT

1 January,

2004

Additions Amortizations 31 December, 2004 Remaining term

Land use right - 3,625 12 3,613 49.25

Less: impairment

loss

-

-

- 3,613

Land use rights represented land located in Shanghai PRC. The land use right is held for a period of 49 years up to February, 2054.

14. INTERESTS IN ASSOCIATES

2004 2003

RMB’000 RMB’000

Unlisted investments, at cost 73,026 73,026

Share of post-acquisition result, net of dividend (930) (1,114)

72,096 71,912

Details of the Group’s associates as 31 December, 2004 are as follows:

Name of Associate Place of incorporation Percentage of Voting right Principal activities


三十五

and operation equity interest held

% %

Chongqing Jianshe Chu Wan Co., Ltd.

(“Chongqing Jianshe Chu Wan”) Chongqing 20(Indirect) 20(Indirect)

Transportation and storage

Huhehaote Jianshe Motorcycle Co., Ltd

(“Huhehaste Jianshe”) Huhehaote 40(Indirect) 40(Indirect)

Sales of motorcycles and components

Chongqing Pingshan Taikai Oil &

Gas Co., Ltd. (Pingshan Taikai”) Chongqing 49 49

Manufacture and sales of carburetors

15. OTHER INVESTMENT

Unlisted investment held for resale 2004 2003

RMB’000 RMB’000

At cost 14,053 14,053

Less: impairment loss (1,141) (1,141)

12,912 12,912

16. OTHER ASSETS


三十六

2004 2003

Notes RMB’000 RMB’000

Accounts receivable to be swapped out (a) 52,211 67,170

Assets swapped in － 9,531

Other assets 595 230

52,806 76,931

In December, 2004, the Company entered into an “Assets Swap Agreement” and “Share Transfer Agreement” with Jianshe Group. Under the agreement, the Company’s subsidiary, Import & Export Co.’s accounts receivable amounting to RMB52,211,000, is to be swapped for 50% of shareholding of Chongqing Jianshe Yamaha Motorcycle Co., Ltd. and Zhuzhou Jianshe Yamaha Motorcycle Co., Ltd. held by Jianshe Group, air conditioning equipment, motor testing and development equipment. As of 31 December, 2004, the transaction was still in progress (See Note 25B(b)).

17. INVENTORIES

2004 2003

RMB’000 RMB’000

Raw materials 103,879 64,467

Work-in-progress 43,823 36,305

Finished goods 122,776 139,099


三十七

270,478 239,871

Included above are raw materials of RMB2,174,000 and finished goods of RMB38,628,000(2003：raw materials of RMB 2,288,000,working-in-progress of RMB3,775,000 and finished goods of RMB77,248,000)carried at the net realizable value.

18. ACCOUNTS RECEIVABLE, PREPAYMENTS AND OTHER RECEVIABLES

2004 2003

RMB’000 RMB’000

Accounts receivable, prepayments and other receivables 464,509 467,795

Accounts receivable, prepayments and other receivables comprise the amounts receivable from the sale of goods of RMB 168,133,000 (2003: RMB207,937,000), and the amounts due from holding company and related company (See note 25C).

The directors consider that the carrying amount of accounts receivable, prepayments and other receivables approximate their fair value.

19. SHORT-TERM LOANS

2004 2003

RMB’000 RMB’000


三十八

Bank loan

-Secured 18,100 8,700

-Unsecured 693,170 626,700

711,270 635,400

The short-term bank loans were secured by property, plant and equipment with net book value of RMB20,941,000 (2003: RMB11,755,000). Unsecured bank loans of RMB454,900,000 (2003: RMB508,500,000) were guaranteed by Jianshe Group. These bank loans bear interest at rates ranging from 4.23% to 6.37% per annum.

20. LONG-TERM LOANS

2004 2003

RMB’000 RMB’000

Bank loan – unsecured - 2,000

21. DEFERRED TAX LIABILITY

2004 2003

RMB’000 RMB’000

Balance of deferred tax arising from the revaluation 19,933 19,933


三十九

surplus of fixed assets

Deferred tax impact to prior years (17,937) (15,944)

Deferred tax impact to current year (Note 10) (1,996) (1,993)

- 1,996

22. SHARE CAPITAL

2004 2003

Shares’000 RMB’000 Shares’000 RMB’000

Unlisted share of RMB 1 each 357,500 357,500 357,500 357,500

B shares (listed) of RMB 1 each 120,000 120,000 120,000 120,000

Total 477,500 477,500 477,500 477,500

23. RESERVES

2004 2003

RMB’000 RMB’000

Share premium 384,579 384,579


四十

Revaluation reserves 122,770 122,770

Statutory revenue reserves 32,070 32,070

Statutory common welfare fund 24,654 24,654

Discretionary reserve fund 68,962 68,962

Accumulated losses (899,906) (938,479)

(266,871) (305,444)


四十一

23. RESERVES (continued)

According to the Company Law of the PRC and Articles of Association of the Company, the Company is required to provide certain statutory reserves, which are appropriated from the net profit as reported in the statutory accounts. Accordingly, the Company shall set aside 10% of its net profit for statutory revenue reserve (except where the fund has

reached 50% of the Company's registered capital) and 5% to 10% for the statutory common welfare fund. The Company may make appropriations from its net profit to the discretionary reserve fund upon approval by shareholders. These reserves cannot be used for purposes other than those of which they are created and could not be distributed as

cash dividends without the prior approval by shareholders under certain conditions.

When the statutory revenue reserve is not sufficient to cover the prior years' losses, the current year's net profit shall first be used to compensate the previous losses before the appropriations to the statutory revenue reserve and statutory common welfare fund.

The statutory common welfare fund is designated for collective welfare of the employees.

The statutory revenue reserve, discretionary reserve, share premium and revaluation reserves, if approved by

shareholders, may be converted into share capital provided that the balance of the statutory reserve does not fall below 25% of the registered share capital. The Company may either distribute new shares in proportion to the number of shares held by shareholders, or increase the par value of each share.

In accordance with the Articles of Association of the Company, the Company declares dividends based on the lower of

retained earnings as reported in the statutory accounts prepared in accordance with PRC GAAP and the financial statements prepared in accordance with IFRS. As the statutory accounts have been prepared in accordance with PRC GAAP, the retained earnings as reported in the statutory accounts will be different from the amount reported in the

accompanying consolidated statement of changes in equity.

For the year ended 31 December, 2004, the Company reported accumulated losses of RMB972,765,000 and RMB899,906,000 in accordance with PRC GAAP and IFRS ,respectively (2003: accumulated losses RMB999,418,000 and RMB938,479,000 ,respectively).

Pursuant to the resolution of the Board of Directors, the Company did not declare any profit for distribution. The

resolution is subject to the approval by the shareholders in the forth coming annual general meeting.


四十二

24.ACQUISITION OF SUBSIDIARIES

During the year, the Group acquired two subsidiaries:

2004 2003

RMB’000 RMB’000

Net assets acquired:

Property, plant and equipment 12,570 73

Inventories - 16,961

Accounts receivable, prepayments and other receivable 702 204,588

Cash and bank balances 685 104,696

Intangible assets 3,625

Other assets - 6,459

Notes payable - (70,334)

Accounts payable and other payable (12,582) (79,430)

Short term loans - (119,000)

5,000 64,013

Less: minority interests (2,450) (6,401)

2,550 57,612


四十三

Add: goodwill 4,080 -

6,630 57,612

Satisfied by:

Cash/asset swap 6,630 57,612

25. RELATED PARTY TRANSACTIONS

The Board of Directors are of the opinion that a complete list of the particulars of related companies will be of

excessive length and therefore the list below contains only the particulars of those related companies which

principally affect the results or net assets of the Group.

A. Relationship

Company Relationship

Jianshe Industries (Group) Corporation (“Jianshe Group”) Holding company *

Chongqing Jianxing Machinery & Fabrication Co., Ltd.

(“Jianxing Machinery”)

Shareholder of holding company


四十四

Chongqing Jinjian Auto Air-Conditioner Co., Ltd.

(“Jinjian Air-Condition ”)

Subsidiary of holding company

Huhehaote Jianshe Motorcycle Sales Co., Ltd.

(“Huhehaote Jianshe Sales”)

Associate of the Group

Chongqing Jianshe YAMAHA Motorcycle Co., Ltd.

(“Jianshe YAMAHA”)

Joint venture of holding company

Jianshe Industry (Group) Shanghai Company

(“Shanghai Company”)

Joint venture of holding company

Chongqing Pingshan Taikai Oil & Gas Co., Ltd.

(Pingshan Taikai”)

Associate of the Group

Chongqing New Modern Motorcycle Co., Ltd.

(“Chongqing New Modern”)

Other investment of the Group

Chongqing Jianshe Chu Wan Co., Ltd.

(“Jianshe Chu Wan”)

Subsidiary of holding company

* Jianshe Group and Weapon Equipment Group Corporation of China, entered into a “Share transfer agreement” on 3 December, 2004 and an “Supplement to the share transfer agreement” on 22 January 2005. According to the agreement and supplement, Jianshe Group will transfer the 339,625,000 of the Company’s shares to Weapon

Equipment Group Corporation of China,. The transfer was approved by the China Stated-owned Assets Supervision on 9 March, 2005, and pending approval by China Securities Regulatory Commission. After the completion of the share transfer, Weapon Equipment Group Corporation of China, will become the holding company of the Company,

Jianshe Group will remain as a related company of the Company. Up to 31 December 2004, the Jianshe Group is still treated as the holding company.


四十五

25. RELATED PARTY TRANSACTIONS (continued)

B. Significant transactions

(a) During the year ended 31 December, 2004, the Group had the following transactions with Jianshe group and other related companies:

Year ended 31 December

Related parties Transaction

2004 2003

RMB’000 RMB’000

Jianshe Group − Purchase of components and raw materials 223,297 132,138

− Subcontracting fees 16,155 12,574

− Sales of motorcycles and components,

service fees

281,215 274,881

− Acquisition of property, plant and equipment 30,419 680

− Sales of property, plant and equipment 33,395 -

− Service and processing income 424 -

− Rental income 24,129 24,700

− Interest income 12,995 8,011

− Deferred consideration 52,211 67,170

− Sales of assets swapped in 11,594 -

Jinjian Auto Air-Conditioner − Purchase of components and raw materials - 1,146


四十六

− Sales of raw materials - 9,168

− Provision of services - 1,422

Jianxing Machinery − Purchases of components and raw materials 14,880 10,802

− Sales of raw materials and work-in-progress 2,600 -

Jianshe YAMAHA − Purchases of components and raw materials 28,118 26,192

− Sales of components 23,338 17,582

Pingshan Taikai − Purchases of components and raw materials 10,352 11,283

Chongqing New Modern − Trademark income 8,000 8,000

− Technology consultant income 3,200 3,200

− Sales of work-in-progress 7,455 3,173

Huhehaote Jianshe Sales − Sales of finished goods 26,176 13,150

Jianshe Chu Wan − Purchases of components and raw materials 2,532 -

− Sales of raw materials and work-in-progress 755 -

− Subcontracting fees 8,411 8,856

The above transactions were carried out at estimated fair market price.


四十七

25. RELATED PARTY TRANSACTIONS(continued)

(b) ASSETS SWAP WITH JIANSHE GROUP

In December 2004, the Company entered into an “Assets Swap Agreement” and “Share Transfer Agreement” with Jianshe Group. Under the agreement, the Company’s subsidiary, Import & Export Co.’s accounts receivable amounting to RMB52,211,000, “Swapped-out asset”, is to be swapped for 50% of shareholding of Chongqing

Jianshe Yamaha Motorcycle Co., Ltd. and Zhu zhou Jianshe Yamaha Motorcycle Co., Ltd. held by Jianshe Group, and air conditioning equipment and motor testing and development equipment, “Swapped-in assets”. The consideration was arrived at on the basis of a valuation carried out by an independent valuer jointly appointed by

both parties, the difference of the values of the swapped-out asset and swapped-in assets is to be paid in cash by the other party.

Accordingly, Messrs. Chongqing Kanghua Certified Public Accountants, were then engaged by both parties to carry out a valuation at the valuation date of 31 October 2004 for the assets swap. According to the valuation report “重

康会评报字(2004)第 65 号” issued by the valuer, the swapped-out asset was valued at RMB52,211,000. According to the valuation report “重康会评报字(2004)第 33-1 号, 第 33-2 号, 第 33-3 号” issued by the valuer, the swapped-in assets were revalued at RMB 434,141,000. The Company will settle the transaction by the

swapped-out asset of RMB 52,210,000 and cash of RMB 381,930,000.

At the same time, United securities corporation co., LTD. has issued an independent financial consultancy report over the Company’s asset swap related party transaction on 29 December 2004..

The above asset swap has to be approved by China Securities Regulatory Commission, then by the shareholders of the Company, Chongqing Jianshe Yamaha Motorcycle Co., Ltd. and Zhu Zhou Jianshe Yamaha Motorcycle Co., Ltd.

(c) Accepting guarantee

As at 31 December 2004, the Group’s short-term loans of RMB454,990,000 (2003:RMB508,500,000)

were guaranteed by Jianshe Group.


四十八

25. RELATED PARTY TRANSACTIONS (continued)

C. Amounts due from/to related parties

2004 2003

RMB’000 RMB’000

(i) Amounts due from related companies

Jianshe group 258,300 205,734

Shanghai Company - 16,648

Jianxing Machinery 12,506 -

(ii) Amounts due to related companies

Jianxing Machinery 4,954 1,500

Pingshan Taikai 5,477 5,049

Chongqing New Modem 7,754 41,238

Jinjian Auto Air-Conditioner - 5,053

Chongqing Jianshe Chu Wan 1,824 1,050

(iii) Notes payable to


四十九

Jinjian Auto Air-Conditioner - 90,625

Jianshe Group 177,680 58,700

Chongqing New Modern - 19,000

The amount due from Jianshe Group bears interest at bank interest rate. (2003: same as bank rate).

The amount due to related companies are interest free, unsecured and have no fixed terms of repayment.

During the year, the Jianshe Group issued bills receivable to the Company amounting to approximately

RMB805,945,000, the Company discounted the bills to bank and advanced the fund to the Jianshe Group. According to the agreement, those expenses arising from the discounted bills have been borne by Jianshe Group.


五十

26. RETIREMENT BENEFITS SCHEME

The Group participates in a retirement benefit scheme arrangement for its employees which is managed by Chongqing Jiulongpo Social Insurance Burean. The Group has obligations to make monthly contributions to the scheme, and the Chongqing Jiulongpo Social Insurance Burean is responsible for the retirement benefit scheme in all

other aspects. For the year, the Group paid for the contribution of the benefit retirement scheme amounting to RMB2,965,000 (2003: RMB 4,380,000).

27. PLEDGE OF ASSETS

Property, plant and equipment with the net book value of RMB20,941,000 (2003: RMB11,755,000) of the Group have been pledged as security for short-term loans of RMB18,100,000 (2003: RMB8,700,000). Deposits pledges as

security for notes payable amounted to RMB720,150,000 (2002: RMB336,650,000).

28. CONTINGENT LIABILITIES

At the balance sheet date, there was no undisclosed material contingent liability (In 2003, RMB 170,000,000

guarantee was provided to the Group for the bank loan).


五十一

29. IMPACTS OF IFRS ADJUSTMENTS ON NET PROFIT AND SHAREHOLDERS’ EQUITY

Net profits/(losses)


Shareholders’ equity


2004 2003 2004 2003

RMB’000 RMB’000 RMB’000 RMB’000

As reported in the statutory accounts

of the Group (under PRC GAAP) 26,653 15,925 209,268 165,569

Depreciation (4,168) (1,108) 14,446 18,614

Business tax and value-added tax — (5,963) — －

Interest income and rental income

of related parties

8,590 9,086 — －

Difference on investment (2,897) (10,649) (13,546) (10,649)

Accounts payable written off 6,893 － —

Minority interest (57) 518 461 518

Other income 1,563 1,997 — －

Deferred tax 1,996 1,993 — (1,996)

As restated under IFRS 38,573 11,799 210,629 172,056

30. COMPARATIVE FIGURES


五十二

Certain comparative amounts have been reclassified to conform with the current year's presentation, as in the opinion of the directors, such classification would produce a more appropriate presentation of the Group’s financial position.

31. LANGUAGE

The report is originally prepared in Chinese. In the event of a conflict between this English translation and the original Chinese version or difference in interpretation between the two versions of the report, the Chinese language report shall

prevail.