UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                ______________
                                   FORM 20-F

(Mark One)
     [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
         SECURITIES EXCHANGE ACT OF 1934
                                      OR
     |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
                                      OR
     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
         SECURITIES EXCHANGE ACT OF 1934


         FOR THE TRANSITION PERIOD FROM TO

                        COMMISSION FILE NUMBER 1-15138
                        ------------------------------
                               [GRAPHIC OMITTED]
                    CHINA PETROLEUM & CHEMICAL CORPORATION
            (Exact name of Registrant as specified in its charter)
                            _______________________

                        The People's Republic of China
                (Jurisdiction of incorporation or organization)
                            _______________________

                            A6, Huixingdong Street
                      Chaoyang District, Beijing, 100029
                        The People's Republic of China
                   (Address of principal executive offices)
                           ________________________

         Securities registered or to be registered pursuant to Section 12 (b)
of the Act.

                                                         Name of Each Exchange
         Title of Each Class                              On Which Registered
         -------------------                              -------------------
American Depositary Shares, each representing
100 H Shares of par value RMB 1.00 per share ............   New York Stock
                                                            Exchange, Inc.

H Shares of par value RMB 1.00 per share.................   New York Stock
                                                            Exchange, Inc.*

*    Not for trading, but only in connection with the registration of American
     Depository Shares.

         Securities registered or to be registered pursuant to Section 12 (g)
of the Act.

                                     None
                               (Title of Class)

         Securities for which there is a reporting obligation pursuant to
Section 15 (d) of the Act.

                                     None
                               (Title of Class)

         Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by
the annual report.

State-owned domestic shares, par value RMB 1.00 per
  share........................................................ 67,121,951,000
H Shares, par value RMB 1.00 per share......................... 16,780,488,000
A Shares, par value RMB 1.00 per share.........................  2,800,000,000

         Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) or the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant as required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

                             Yes   X          No__
                                  ---

         Indicate by check mark which financial statement item the Registrant
has elected to follow.

                            Item 17 ___       Item 18   X
                                                       ---
<PAGE>
<TABLE>
                                        Table of Contents

                                                                                                 Page
                                                                                                 ----
<CAPTION>
<S>                                                                                              <C>
PART I        ....................................................................................4

ITEM 1.       IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS...............................4

ITEM 2.       OFFER STATISTICS AND EXPECTED TIMETABLE.............................................4

ITEM 3.       KEY INFORMATION.....................................................................4

              A.  SELECTED FINANCIAL DATA.........................................................4

              B.  CAPITALIZATION AND INDEBTEDNESS.................................................6

              C.  REASONS FOR THE OFFER AND USE OF PROCEEDS.......................................7

              D.  RISK FACTORS....................................................................7

ITEM 4.       INFORMATION ON THE COMPANY.........................................................12

              A.  HISTORY AND DEVELOPMENT OF THE COMPANY.........................................12

              B.  BUSINESS OVERVIEW..............................................................13

              C.  ORGANIZATIONAL STRUCTURE.......................................................27

              D.  PROPERTY, PLANT AND EQUIPMENT..................................................27

ITEM 5.       OPERATING AND FINANCIAL REVIEW AND PROSPECTS.......................................28

              A.  GENERAL........................................................................28

              B.  CONSOLIDATED RESULTS OF OPERATIONS.............................................34

              C.  DISCUSSIONS ON RESULTS OF SEGMENT OPERATIONS...................................43

              D.  LIQUIDITY AND CAPITAL RESOURCES................................................54

ITEM 6.       DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.........................................58

              A.  DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT...................................58

              B.  COMPENSATION...................................................................65

              C.  BOARD PRACTICE.................................................................66

              D.  EMPLOYEES......................................................................67

              E.  SHARE OWNERSHIP................................................................67

ITEM 7.       MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..................................68

              A.  MAJOR SHAREHOLDERS.............................................................68

              B.  RELATED PARTY TRANSACTIONS.....................................................68

              C.  INTERESTS OF EXPERTS AND COUNSEL...............................................68

ITEM 8.       FINANCIAL INFORMATION..............................................................69

              A.  CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION........................69

              B.  SIGNIFICANT CHANGES............................................................69

ITEM 9.       THE OFFER AND LISTING..............................................................69

              A.  OFFER AND LISTING DETAILS......................................................69

ITEM 10.      ADDITIONAL INFORMATION.............................................................70

              A.  SHARE CAPITAL..................................................................70

              B.  MEMORANDUM AND ARTICLES OF ASSOCIATION.........................................71

              C.  MATERIAL CONTRACTS.............................................................77

                                                 i
<PAGE>

              D.  EXCHANGE CONTROLS..............................................................77

              E.  TAXATION.......................................................................78

              F.  DIVIDENDS AND PAYING AGENTS....................................................81

              G.  STATEMENT BY EXPERTS...........................................................81

              H.  DOCUMENTS ON DISPLAY...........................................................82

              I.  SUBSIDIARY INFORMATION.........................................................82

ITEM 11.      QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.........................82

ITEM 12.      DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.............................89

PART II       ...................................................................................89

ITEM 13.      DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES....................................89

ITEM 14.      MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.......89

              A.  MATERIAL MODIFICATIONS TO THE RIGHTS TO SECURITIES HOLDERS.....................89

              B.  USE OF PROCEEDS................................................................89

ITEM 15.      CONTROLS AND PROCEDURES............................................................89

ITEM 16.      RESERVED...........................................................................90

ITEM 16A.     AUDIT COMMITTEE FINANCIAL EXPERT...................................................90

ITEM 16B.     CODE OF ETHICS.....................................................................90

ITEM 16C.     PRINCIPAL ACCOUNTANT FEES AND SERVICES.............................................90

ITEM 16D.     EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDITS COMMITTEES........................90

ITEM 16E.     PURCHASERS OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS............90

PART III      ...................................................................................91

ITEM 17.      FINANCIAL STATEMENTS...............................................................91

ITEM 18.      FINANCIAL STATEMENTS...............................................................91

ITEM 19.      EXHIBITS...........................................................................91
</TABLE>

                                                 ii
<PAGE>

                         CERTAIN TERMS AND CONVENTIONS

Definitions

Unless the context otherwise requires, references in this annual report to:

     o    "Sinopec Corp.", "we", "our" and "us" are to China Petroleum &
          Chemical Corporation, a PRC joint stock limited company, and its
          subsidiaries;

     o    "Sinopec Group Company" are to our controlling shareholder, China
          Petrochemical Corporation, a PRC limited liability company;

     o    "Sinopec Group" are to the Sinopec Group Company and its
          subsidiaries other than Sinopec Corp. and its subsidiaries;

     o    "Old Sinopec" are to the ministerial level enterprise of China
          Petrochemical Corporation and its affiliates before the industry
          restructuring in March 1998;

     o    "China" or the "PRC" are to the People's Republic of China,
          excluding for purposes of this annual report Hong Kong, Macau and
          Taiwan;

     o    "provinces" are to provinces and to provincial-level autonomous
          regions and municipalities in China which are directly under the
          supervision of the central PRC government;

     o    "RMB" are to Renminbi, the currency of the PRC; and

     o    "US$" are to US dollars, the currency of the United States of
          America.

Conversion Conventions

         Conversions of crude oil from tonnes to barrels are made at a rate of
one tonne to 7.35 barrels for crude oil we purchase from external sources and
one tonne to 7.1 barrels for crude oil we produce, representing the typical
gravity of the respective source of crude oil. Conversions of natural gas from
cubic meters to cubic feet are made at a rate of one cubic meter to 35.315
cubic feet.

Glossary of Technical Terms

Unless otherwise indicated in the context, references to:

     o    "billion" are to a thousand million.

     o    "BOE" are to barrels-of-oil equivalent; natural gas is converted at
          a ratio of 6,000 cubic feet of natural gas to one BOE.

     o    "primary distillation capacity" are to the crude oil throughput
          capacity of a refinery's basic distillation units, calculated by
          estimating the number of days in a year that such basic distillation
          units are expected to operate, including downtime for regular
          maintenance, and multiplying that number by the amount equal to the
          units' optimal daily crude oil throughput.

     o    "rated capacity" are to the output capacity of a given production
          unit or, where appropriate, the throughput capacity, calculated by
          estimating the number of days in a year that such production unit is
          expected to operate, including downtime for regular maintenance, and
          multiplying that number by an amount equal to the unit's optimal
          daily output or throughput, as the case may be.

     o    "utilization rate" are to the amount of output or throughput by a
          production unit per annum as a proportion of the capacity of that
          unit per annum at the end of a year except where indicated otherwise.

                                       1
<PAGE>

                         CURRENCIES AND EXCHANGE RATES

         We publish our financial statements in Renminbi. Unless otherwise
indicated, all translations from Renminbi to US dollars have been made at a
rate of RMB 8.2765 to US$1.00, the noon buying rate as certified for customs
purposes by the Federal Reserve Bank of New York on December 31, 2004. We do
not represent that Renminbi or US dollar amounts could be converted into US
dollars or Renminbi, as the case may be, at any particular rate, the rates
below or at all.

         The following table sets forth noon buying rate for US dollars in New
York City for cable transfers in Renminbi as certified for customs purposes by
the Federal Reserve Bank of New York for the periods indicated:

<TABLE>

                                                                             Noon Buying Rate
                                                                ----------------------------------------------
Period                                                          End        Average(1)      High          Low
------                                                          ---        ----------      ----          ---
                                                                              (RMB per US$1.00)

<CAPTION>

<S>                                                           <C>           <C>           <C>           <C>
2000....................................................      8.2774        8.2784        8.2799        8.2768
2001....................................................      8.2766        8.2770        8.2786        8.2676
2002....................................................      8.2800        8.2772        8.2800        8.2759
2003....................................................      8.2767        8.2772        8.2800        8.2769
2004....................................................      8.2765        8.2767        8.2774        8.2764
December 2004...........................................      8.2765        8.2765        8.2767        8.2765
January 2005............................................      8.2765        8.2765        8.2765        8.2765
February 2005...........................................      8.2765        8.2765        8.2765        8.2765
March 2005 .............................................      8.2765        8.2765        8.2765        8.2765
April 2005..............................................      8.2765        8.2765        8.2765        8.2765
May 2005................................................      8.2765        8.2765        8.2765        8.2765
June 2005 (up to June 17, 2005).........................      8.2765        8.2765        8.2765        8.2765

__________

(1)  Determined by averaging the rates on the last business day of each month during the relevant period.

</TABLE>

                                       2
<PAGE>

                          FORWARD-LOOKING STATEMENTS

         This annual report includes "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. All
statements, other than statements of historical facts, included in this annual
report that address activities, events or developments which we expect or
anticipate will or may occur in the future are hereby identified as
forward-looking statements for the purpose of the safe harbor provided by
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The words such as believe, intend, expect, anticipate,
project, estimate, predict, plan and similar expressions are also intended to
identify forward-looking statements. These forward-looking statements address,
among others, such issues as:

     o    amount and nature of future exploration and development,
     o    future prices of and demand for our products,
     o    future earnings and cash flow,
     o    development projects and drilling prospects,
     o    future plans and capital expenditures,
     o    estimates of proved oil and gas reserves,
     o    exploration prospects and reserves potential,
     o    expansion and other development trends of the petroleum and
          petrochemical industry,
     o    production forecasts of oil and gas,
     o    expected production or processing capacities, including expected
          rated capacities and primary distillation capacities, of units or
          facilities not yet in operation,
     o    expansion and growth of our business and operations, and
     o    our prospective operational and financial information.

         These statements are based on assumptions and analyses made by us in
light of our experience and our perception of historical trends, current
conditions and expected future developments, as well as other factors we
believe are appropriate in particular circumstances. However, whether actual
results and developments will meet our expectations and predictions depends on
a number of risks and uncertainties which could cause actual results to differ
materially from our expectations, including the risks set forth in "Item 3 --
Key Information -- Risk Factors" and the following:

     o    fluctuations in crude oil prices,
     o    fluctuations in prices of our products,
     o    failures or delays in achieving production from development
          projects,
     o    potential acquisitions and other business opportunities,
     o    general economic, market and business conditions, and
     o    other risks and factors beyond our control.

         Consequently, all of the forward-looking statements made in this
annual report are qualified by these cautionary statements and readers are
cautioned not to place undue reliance on these forward-looking statements.
These forward-looking statements should be considered in light of the various
important factors set forth above and elsewhere in this Form 20-F. In
addition, we cannot assure you that the actual results or developments
anticipated by us will be realized or, even if substantially realized, that
they will have the expected effect on us or our business or operations.

                                       3
<PAGE>

                                    PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

         Not applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

         Not applicable.

ITEM 3.  KEY INFORMATION

         A.   SELECTED FINANCIAL DATA

         The selected income statement data and cash flow data for the years
ended December 31, 2002, 2003 and 2004, and the selected balance sheet data as
of December 31, 2003 and 2004 have been derived from, and should be read in
conjunction with, the audited consolidated financial statements included
elsewhere in this annual report. The selected income statement data and cash
flow data for the years ended December 31, 2000 and 2001 and the selected
balance sheet data as of December 31, 2000, 2001 and 2002 are derived from our
audited consolidated financial statements which are not included in this annual
report and financial statements of the acquired businesses described below.

         We acquired from Sinopec Group Company the equity interests of
Sinopec National Star Petroleum Company ("Sinopec National Star") in 2001, the
operations of Sinopec Group Maoming Petrochemical Company ("Sinopec Maoming"),
Xi'an Petrochemical Main Factory ("Xi'an Petrochemical") and Tahe Oilfield
Petrochemical Factory ("Tahe Petrochemical") in 2003, and the operations of
Sinopec Group Tianjin Petrochemical Company, Sinopec Group Luoyang
Petrochemical General Plant, Zhongyuan Petrochemical Company Limited, Sinopec
Group Guangzhou Petrochemical General Plant and certain catalyst plants
(collectively, "Petrochemical and Catalyst Assets") in 2004. As we and these
companies are under the common control of Sinopec Group Company, our
acquisitions are considered as "combination of entities under common control"
which are accounted for in a manner similar to a pooling-of-interests.
Accordingly, the acquired assets and related liabilities have been accounted
for at historical cost and our consolidated financial statements for periods
prior to the combinations have been restated to include the financial position
and the results of operations of these companies on a combined basis.

         Moreover, the selected financial data should be read in conjunction
with our consolidated financial statements together with accompanying notes
and "Item 5 - Operating and Financial Review and Prospects" included elsewhere
in this annual report. Unless otherwise indicated, our consolidated financial
statements are prepared and presented in accordance with International
Financial Reporting Standards, or IFRS. IFRS vary in certain significant
respects from accounting principles generally accepted in the United States of
America, or US GAAP. Information relating to the nature and effect of such
differences is presented in Note 34 to the consolidated financial statements.

                                       4
<PAGE>

<TABLE>
<CAPTION>

                                                                      Years Ended December 31,
                                                -------------------------------------------------------------------
                                                 2000        2001        2002        2003        2004         2004
                                                -----        ----        ----        ----        ----         ----
                                                 RMB         RMB         RMB         RMB         RMB        US$(5)
                                                          (in millions, except per share and per ADS data)

<S>                                             <C>         <C>         <C>         <C>         <C>          <C>

Income Statement Data(1):
IFRS
   Consolidated results
   Operating revenues.....................      341,576     326,424     350,078     449,001     619,783      74,885
   Purchased crude oil, products and
     operating supplies and expenses......     (230,497)   (222,700)   (239,088)   (313,238)   (443,590)    (53,596)
   Selling, general and administrative
     expenses.............................      (20,812)    (18,986)    (22,367)    (27,228)    (31,843)     (3,847)
   Depreciation, depletion and
     amortization.........................      (22,159)    (24,343)    (26,492)    (27,951)    (32,342)     (3,908)
   Exploration expenses, including dry
     holes................................       (3,030)     (3,775)     (4,363)     (6,133)     (6,396)       (773)
   Personnel expenses.....................      (14,380)    (14,307)    (15,024)    (16,972)    (18,634)     (2,251)
   Employee reduction expenses............            -      (2,546)       (244)     (1,040)       (919)       (111)
   Taxes other than income tax............      (12,419)    (12,033)    (12,015)    (13,581)    (16,324)     (1,973)
   Other operating expenses, net..........           77        (423)     (1,184)     (3,975)     (6,666)       (806)
                                                ----------  --------   ---------   ---------   ----------   ---------
   Operating income.......................       38,356      27,311      29,301      38,883      63,069       7,620
   Interest expense, net of interest
     income and net foreign exchange
     gains (losses).......................       (5,535)     (3,884)     (4,948)     (4,463)     (4,371)       (528)
   Gains from issuance of shares by a
     subsidiary...........................            -           -           -         136           -           -
   Other income ..........................          199         503         563         485         908         110
                                                ----------  --------   ---------   ---------   ----------   ---------
   Income before income tax and minority
     interests............................       33,020      23,930      24,916      35,041      59,606       7,202
   Income tax.............................       (9,566)     (7,819)     (7,491)    (10,645)    (17,815)     (2,153)
                                                ----------  --------   ---------   ---------   ----------   ---------
   Income before minority interests.......       23,454      16,111      17,425      24,396      41,791       5,049
   Minority interests.....................       (1,722)       (608)     (1,129)     (1,972)     (5,772)       (697)
                                                ----------  --------   ---------   ---------   ----------   ---------
   Net income.............................       21,732      15,503      16,296      22,424      36,019       4,352
                                                ==========  ========   =========   =========   ==========   =========
   Basic earnings per share(2)............         0.30        0.18        0.19        0.26        0.42        0.05
   Basic earnings per ADS(2)..............        30.21       18.20       18.80       25.86       41.54        5.02
   Cash dividends declared per share......         0.01        0.08        0.10        0.09        0.10        0.01
   Segment results
     Exploration and production...........       25,411      23,185      14,787      19,160      25,614       3,095
     Refining.............................        1,429       2,151       6,024       6,073       5,943         718
     Marketing and distribution...........        6,358       2,443       8,401      11,943      14,716       1,778
     Chemicals............................        5,447        (693)      1,088       3,543      18,721       2,262
     Corporate and others.................         (289)        225        (999)     (1,836)     (1,925)       (233)
                                                ----------  --------   ---------   ---------   ----------   ---------
     Operating income.....................       38,356      27,311      29,301      38,883      63,069       7,620
                                                ==========  ========   =========   =========   ==========   =========
US GAAP
   Depreciation, depletion and
     amortization.........................      (17,016)    (18,815)    (21,046)    (22,585)    (26,998)     (3,262)
   Income tax.............................      (10,384)     (8,084)     (8,825)    (12,143)    (19,614)     (2,370)
   Net income.............................       21,721      16,793      19,731      26,408      39,975       4,830
   Basic earnings per share(2)............         0.30        0.20        0.23        0.30        0.46        0.06
   Basic earnings per ADS(2)..............        30.19       19.72       22.76       30.46       46.11        5.57
   Cash dividends declared per share......         0.01        0.08        0.10        0.09        0.10        0.01


                                                                          As of December 31,
                                                 -------------------------------------------------------------------
                                                   2000        2001        2002        2003        2004        2004
                                                 --------    -------      ------      ------     -------     -------
                                                   RMB         RMB         RMB         RMB         RMB        US$(5)
                                                                             (in millions)
Balance Sheet Data(1):
IFRS
   Cash and cash equivalents...............        20,994      22,345      19,324      16,263      16,381       1,979
   Total current assets....................       142,308     114,885     106,666     103,039     120,271      14,531
   Total non-current assets(3).............       247,695     286,093     301,614     317,145     354,323      42,811
   Total assets(3).........................       390,003     400,978     408,280     420,184     474,594      57,342
   Short-term debts and loans from Sinopec
     Group Company and its affiliates
     (including current portion of
     long-term debts)......................        61,477      52,306      39,710      34,046      41,021       4,956
   Long-term debts and loans from Sinopec
     Group Company and its affiliates
     (excluding current portion of
     long-term debts)......................        88,241      82,298      86,884      87,296      97,587      11,791

                                       5
<PAGE>
                                                                          As of December 31,
                                                 -------------------------------------------------------------------
                                                   2000        2001        2002        2003        2004        2004
                                                 --------    -------      ------      ------     -------     -------
                                                   RMB         RMB         RMB         RMB         RMB        US$(5)
                                                                             (in millions)

   Shareholders' equity(3).................       144,921     159,558     166,777     171,515     193,040      23,324
   Capital employed(4).....................       297,117     295,469     298,198     302,645     346,313      41,843
US GAAP
   Total non-current assets................       218,918     260,566     279,552     297,308     337,784      40,813
   Total assets............................       355,642     370,895     381,049     395,361     450,971      54,488
   Long-term debts and loans from Sinopec
     Group Company and its affiliates
     (excluding current portion of
     long-term debts)......................        87,791      81,798      86,569      85,496      92,884      11,223
   Shareholders' equity....................       124,400     142,260     153,121     161,832     187,850      22,697


                                                                       Years Ended December 31,
                                                  -------------------------------------------------------------------
                                                   2000        2001        2002        2003        2004        2004
                                                  -------     ------     -------      ------      ------     --------
                                                   RMB         RMB         RMB         RMB         RMB        US$(5)
                                                                            (in millions)
Other Financial Data(1):
IFRS
   Net cash from operating activities......        30,239      57,460      56,749      62,097      69,081       8,347
   Net cash from/(used in) financing
     activities............................        29,215     (17,092)    (16,681)    (14,473)      5,028         608
   Net cash used in investing activities...       (64,461)    (39,010)    (43,096)    (50,690)    (73,992)     (8,940)
   Capital expenditure
     Exploration and production............        14,813      20,276      20,228      20,628      21,234       2,566
     Refining..............................         5,810       9,152       6,698       9,788      14,272       1,724
     Marketing and distribution............        16,080      17,256       6,982       6,826      16,678       2,015
     Chemicals.............................         9,020      12,622       7,769       7,680      11,025       1,332
     Corporate and others..................           398         528         816         518       1,550         187
                                                ----------  ---------  ----------  ----------  ----------   ---------
     Total.................................        46,121      59,834      42,493      45,440      64,759       7,824
                                                ==========  =========  ==========  ==========  ==========   =========
   Capital expenditure of jointly controlled
     entities
     Exploration and production............             -           -           -       1,200       1,323         160
     Chemicals.............................             -           -           -       2,993       5,178         625
                                                ----------  --------   ---------   ---------   ----------   ---------
     Total.................................             -           -           -       4,193       6,501         785
                                                ==========  =========  ==========  ==========  ==========   =========

----------------

(1)  The acquisition of Sinopec National Star in 2001, the acquisitions of Sinopec Maoming, Xi'an Petrochemical and
     Tahe Petrochemical in 2003 and the acquisitions of Petrochemical and Catalyst Assets from Sinopec Group
     Company in 2004 are considered as "combination of entities under common control" which are accounted in a
     manner similar to a pooling-of-interests ("as-if pooling-of-interests accounting"). Accordingly, the acquired
     assets and liabilities have been accounted for at historical cost and the consolidated financial statements
     for periods prior to the combinations have been restated to include the financial position and results of
     operations of these acquired companies on a combined basis. The considerations for these acquisitions were
     treated an equity transactions.
(2)  Basic earnings per share and per ADS have been computed by dividing net income by the weighted average number
     of shares in issue.
(3)  Includes the effect of the revaluation of property, plant and equipment as of September 30, 1999. In addition,
     property, plant and equipment of Sinopec National Star, Sinopec Maoming, Xi'an Petrochemical, Tahe
     Petrochemical, and Petrochemical and Catalyst Assets were revalued as of December 31, 2000, June 30, 2003,
     October 31, 2003, October 31, 2003 and June 30, 2004, respectively, in connection with the acquisitions.
(4)  Equals the sum of short-term debts, long-term debts, loans from Sinopec Group Company and its affiliates,
     shareholders' equity and minority interests less cash and cash equivalents.
(5)  Translated solely for the convenience of the readers into US dollars at the rate prevailing on December 31,
     2004 of US$1.00 to RMB 8.2765.

</TABLE>

         B.   CAPITALIZATION AND INDEBTEDNESS

         Not applicable.

                                       6
<PAGE>

         C.   REASONS FOR THE OFFER AND USE OF PROCEEDS

         Not applicable.

         D.   RISK FACTORS

Risks Relating to Sinopec Corp.

         Our development plans have significant capital expenditure and
         financing requirements, which are subject to a number of risks and
         uncertainties.

         Our current capital expenditures plan contemplates approximately RMB
62.0 billion (US$7.5 billion) in 2005. Our actual capital expenditures may
vary significantly from these planned amounts due to various factors.

         Our ability to obtain external financing in the future is subject to
a variety of uncertainties including:

     o    our future results of operations, financial condition and cash
          flows;

     o    the economic condition in China and the market environment for our
          products;

     o    the cost of financing and the condition of financial markets; and

     o    the issuance of relevant government approvals and other project
          risks associated with the development of infrastructure in China.

         Our failure to obtain sufficient funding for our operations or
development plans could adversely affect our business, results of operations
and financial condition.

         We face strong competition from domestic and foreign competitors.

         Among our competitors, some are major integrated petroleum and
petrochemical companies within and outside the PRC, which have recently become
more significant participants in the petroleum and petrochemical industry in
China. We believe such trend will continue. Increased competition may have a
material adverse effect on our financial condition and results of operations.

         We may not be able to pass on all increases in our crude oil costs.

         In 2004, approximately 79% of the crude oil required for our refinery
business was sourced from outside suppliers. In addition, our development will
leave us no choice but to source an increasing amount of crude oil from
outside suppliers. While we try to match price increases with corresponding
crude oil price increases, our ability to pass on cost increases to our
customers is dependent on international and domestic market conditions as well
as government regulations. We predict that the PRC governmental authority may
continue to exercise control over the prices of certain of our products in
2005. Consequently, we may not be able to recover fully our increase in crude
oil costs due to an inability to increase the sale prices of our downstream
products.

         Related party transactions; non-competition; conflicts of interest.

         We have engaged from time to time and will continue to engage in a
variety of transactions with Sinopec Group Company, which provides to us a
number of services, including, but not limited to, ancillary supply,
engineering, maintenance, transport, educational and community services. The
nature of our transactions with Sinopec Group Company is governed by a number
of service and other contracts between Sinopec Group Company and us. In
addition, Sinopec Group Company has interests in businesses which compete or
are likely to compete, either directly or indirectly, with our businesses. We
and Sinopec Group Company have entered into a non-competition agreement
whereby Sinopec Group Company has agreed to refrain from operating businesses
which compete or could compete with us in any of our domestic or international
markets; grant us an option to purchase Sinopec Group Company's operations
that compete or could compete with our businesses; operate its sales
enterprises and service stations in a manner uniform to our sales and service
operations; and appoint us as

                                       7
<PAGE>

sales agent for certain of its products which compete or could compete with our
products. Notwithstanding the foregoing contractual arrangements, because
Sinopec Group Company is our dominant shareholder and the interests of the
Sinopec Group Company may conflict with our own interests, Sinopec Group
Company or any of its member may take actions that favor its interests or other
subsidiaries' interests over ours.

         In addition, while we and Sinopec Group Company have entered into
agreements which generally provide that these services provided by Sinopec
Group Company will be priced on terms at least as favorable to us as ordinary
commercial terms, we have limited or no practical alternative source of supply
for some of these services, utilities, materials and equipment at reasonable
cost. As a result, in the future we may have limited ability to negotiate with
Sinopec Group Company over the terms of our agreements with respect to these
services, utilities, materials and equipment.

         Our insurance coverage may not be sufficient to cover the risks
         related to exploration, development and production and losses caused
         by natural disasters.

         Due to the nature of our business, we handle many highly flammable
and explosive materials and operate many facilities under high pressure and
high temperatures. We have experienced accidents that have caused property
damage and personal injuries, and we cannot assure that industry-related
accidents will not occur in the future.

         We currently maintain insurance coverage with Sinopec Group Company
on our property, plant, equipment and inventory. The amount of coverage is
determined on the basis of the historical value of the covered fixed assets
and, with respect to inventory, twice each year on the basis of the average
month-end inventory value of the most recent six months. The amount of our
insurance coverage may be less than the replacement cost of the covered
properties and plants and may not be sufficient to cover all our financial
losses.

         We do not carry any business interruption insurance or third party
liability insurance to cover claims in respect of personal injury, property or
environmental damage arising from accidents on our property or relating to our
operations other than third party liability insurance with respect to certain
transportation vehicles. Losses incurred or payments required to be made by
us, which are not fully insured, may have a material adverse effect on our
results of operations.

         The oil and natural gas reserves data in this annual report are only
         estimates, and our actual production, revenues and expenditures with
         respect to our reserves may differ materially from these estimates.

         There are numerous uncertainties inherent in estimating quantities of
proved oil and natural gas reserves, and in the timing of development
expenditures and the projection of future rates of production. The reserve
data set forth in this annual report represent estimates only. Adverse changes
in economic conditions may render it uneconomical to develop certain reserves.
Our actual production, revenues, taxes and fees payable and development and
operating expenditures with respect to our reserves may likely vary from these
estimates.

         The reliability of reserves estimates depends on:

     o    the quality and quantity of technical and economic data;

     o    the prevailing oil and gas prices applicable to our production;

     o    the production performance of the reservoirs;

     o    extensive engineering judgments; and

     o    consistency in the PRC government's oil policies.

         In addition, new drilling, testing and production following the
estimates may cause substantial upward or downward revisions in the estimates.
Furthermore, the discounted future cash flow calculated by applying the 10%
discount rate, which was included in "Consolidated Financial
Statements-Supplemental Information on Oil and Gas Producing Activities
(Unaudited)" following Item 19, may not represent the actual net present value
of the relevant cash flow.

                                       8
<PAGE>

         Our continued business success depends in part on our ability to
         replace reserves and develop newly discovered reserves.

         Our ability to achieve our growth objectives is dependent in part on
our level of success in discovering or acquiring additional oil and natural
gas reserves and further exploring our current reserve base. Our exploration
and development activities for additional reserves expose us to inherent risks
associated with drilling, including the risk that no economically productive
oil or natural gas reservoirs will be encountered. Without reserve additions
through further exploration and development or acquisition activities, our
reserves and production will decline over time as our reserves will be
depleted.

         The PRC National Audit Office has recently audited our ultimate
         controlling shareholder. We cannot predict the outcome of this audit
         or its effect on our reputation, our business and financial condition
         as well as the trading prices of our ADSs and H shares.

         PRC's National Audit Office, or the NAO, from time to time performs
audits on state-owned companies, such as Sinopec Group Company, our ultimate
controlling shareholder. We understand that the NAO has recently completed its
auditing on Sinopec Group Company. We cannot predict the outcome of this
audit. If, as a result of this audit, material irregularities are found within
Sinopec Group Company or Sinopec Group Company becomes the target of any
negative publicity, there may be a material adverse effect on our reputation,
our business and financial condition as well as the trading prices of our ADSs
and H shares. In addition, we may be the subject of other governmental or
third party investigations or similar events that, depending on their outcome,
could have a material adverse effect on our business and financial condition
and the trading prices of our ADSs and H shares.

Risks Relating to the Petroleum and Petrochemical Industry

         Our business operations may be adversely affected by present or
         future environmental regulations.

         As an integrated petroleum and petrochemical company, we are subject
to extensive environmental protection laws and regulations in China. These
laws and regulations permit:

     o    the imposition of fees for the discharge of waste substances;

     o    the levy of fines and payments for damages for serious environmental
          offenses; and

     o    the central government, at its discretion, to close any facility
          which fails to comply with orders and require it to correct or stop
          operations causing environmental damage.

         Our production operations produce substantial amounts of waste water,
gas and solid waste materials. In addition, our production facilities require
operating permits that are subject to renewal, modification and revocation. We
have established a system to treat waste materials to prevent and reduce
pollution and believe that our operations substantially comply with all
applicable PRC environmental laws and regulations as they have been previously
interpreted and enforced.

         The PRC government has moved, and may move further, toward more
rigorous enforcement of applicable laws, and toward the adoption of more
stringent environmental standards, which, in turn, would require us to incur
additional expenditures on environmental matters.

         Our operations may be adversely affected by the cyclical nature of
         the market.

         Most of our revenues are attributable to sales of refined petroleum
products and petrochemical products, and certain businesses and related
products have historically been cyclical and sensitive to the availability and
prices of feedstock and general economic conditions, such as changes in
industry capacity and output levels, cyclical changes in regional and global
economic conditions, prices and availability of substitute products and
changes in consumer demand. With the further reduction of tariffs and other
import restrictions in the PRC, many of our products have become increasingly
subject to the cyclicality of global markets. While we are a company
integrated with upstream, midstream and downstream operations, it can help us
reduce the effects of industry cycles only to certain extent.

                                       9
<PAGE>

         Our business faces natural disasters and operation risks that may
         cause significant interruption of operations.

         Exploring for, producing and transporting crude oil and natural gas
and producing and transporting refined and petrochemical products involve a
number of hazards. As with many other companies in the world which conduct
similar businesses, we have experienced accidents that have caused property
damage and personal injuries. Our safety and maintenance measures at our
production facilities and for our transportation facilities may not be
sufficient, and significant natural disasters may cause significant
interruption of our operations and property and environmental damages that
could have a material adverse impact on our financial condition and results of
operations.

Risks Relating to the PRC

         The political and economic situation in the PRC may affect our
         business.

         The PRC economy differs from the economies of most developed
countries in many respects, including structure, government involvement, level
of development, control of foreign exchange, allocation of resources and
balance of payment position. For the past two decades, the PRC government has
implemented economic reform measures emphasizing utilization of market forces
in the development of the PRC economy. However, since early 2004, the PRC
government has implemented certain measures in order to prevent the PRC
economy from overheating. We expect such macroeconomic control measures will
continue in the year of 2005. Our results of operations, as well as future
prospects, may be adversely affected by an economic downturn in China.

         Government regulations may limit our activities and affect our
         business operations.

         The PRC governments, though gradually liberalizing its regulation of
oil and petrochemical industry and transforming toward a market economy,
continue to exercise a certain degree of control over the petroleum and
petrochemical industry in China by, among others:

     o    licensing the right to explore and produce crude oil;

     o    publishing from time to time retail guidance prices for gasoline and
          diesel based on formulas linked to relevant international market
          prices;

     o    allocating and pricing of certain resources and services;

     o    assessing taxes and fees payable;

     o    setting import and export quotas and procedures; and

     o    setting safety, environmental and quality standards.

         As a result, we may face significant constraints on our flexibility
and ability to expand our business operations or to maximize our
profitability.

         Some of our development plans require compliance with state policies
         and regulatory approval.

         We are currently engaged in a number of construction and expansion
projects. Some of our large construction and expansion projects are subject to
governmental review and approval. The timing and cost of completion of these
projects will depend on numerous factors, including such review and approvals
from relevant PRC government authorities and general economic conditions in
China. If any of our important projects required for our future growth are not
approved, or not approved on a timely fashion, our results of operations and
financial condition could be adversely impacted.

                                      10
<PAGE>

         Entry by China into the World Trade Organization significantly
         increases competition from foreign companies in our lines of business.

         China became a member of the World Trade Organization ("WTO") in
December 2001. In entering the WTO, China has agreed to significantly reduce
the trade barriers over time for imports that have historically existed and
that currently exist in China such as:

     o    granting foreign-owned companies the right to import into China
          crude oil and refined products through companies authorized by the
          PRC government;

     o    permitting foreign companies to distribute and market refined
          petroleum products in both retail and wholesale markets in China;

     o    significantly reducing tariffs on refined products and petrochemical
          products; and

     o    eliminating over time quotas and other non-tariff barriers for
          imports and exports of crude oil and refined products.

         We have been facing increasing competition from foreign producers of
refined petroleum products and petrochemical products in recent years. Any
present or future increase in foreign competition may have an adverse effect
on our results of operations.

         Government control of currency conversion may adversely affect our
         operations and financial results.

         We receive substantially all of our revenues in Renminbi. A portion
of such revenues will need to be converted into other currencies to meet our
foreign currency obligations, including:

     o    import of crude oil and other materials;

     o    debt service on foreign currency - denominated debt;

     o    purchases of imported equipment; and

     o    payment of any cash dividends declared in respect of the H shares.

         The existing foreign exchange regulations have significantly reduced
government foreign exchange controls for transactions under the current
account, including trade and service related foreign exchange transactions and
payment of dividends. Foreign exchange transactions under the capital account,
including principal payments in respect of foreign currency-denominated
obligations, continue to be subject to significant foreign exchange controls
and require the approval of the State Administration of Foreign Exchange.
These limitations could affect our ability to obtain foreign exchange through
debt or equity financing, or to obtain foreign exchange for capital
expenditures. The PRC government has stated publicly that it intends to make
the Renminbi freely convertible in the future. However, we cannot predict
whether the PRC government will continue its existing foreign exchange policy
and when the PRC government will allow free conversion of Renminbi. In
addition, there is speculation that the PRC government may revalue the
Renminbi against the US dollar, and we cannot assure you that any future
movements in the exchange rate of the Renminbi against the US dollar and other
currencies will not adversely affect our results of operations and financial
conditions.

         Enforcement of shareholder rights; mandatory arbitration.

         Currently, the primary sources of shareholder rights are our articles
of association, the PRC Company Law and the Listing Rules of the Hong Kong
Stock Exchange, which, among other things, impose certain standards of
conduct, fairness and disclosure on us, our directors and our controlling
shareholder. In general, their provisions for protection of shareholder's
rights and access to information are different from those applicable to
companies incorporated in the United States, the United Kingdom and other
Western countries. In addition, the mechanism for enforcement of rights under
the corporate framework to which we are subject may also be relatively
undeveloped and untested. To our knowledge, there has not been any published
report of judicial enforcement in the PRC by H share shareholders of their
rights under constituent documents of joint

                                      11
<PAGE>

stock limited companies or the PRC Company Law or in the application or
interpretation of the PRC or Hong Kong regulatory provisions applicable to PRC
joint stock limited companies. We cannot assume that our shareholders will
enjoy protections that they may be entitled in other jurisdictions.

         China does not have treaties providing for the reciprocal recognition
and enforcement of judgments of courts with the United States, the United
Kingdom or most other Western countries, and therefore recognition and
enforcement in China of judgments of a court in any of these jurisdictions in
relation to any matter not subject to a binding arbitration provision may not
be assured. Our articles of association as well as the Listing Rules of the
Hong Kong Stock Exchange provide that most disputes between holders of H
shares and us, our directors, supervisors, officers or holders of domestic
shares, arising out of the articles of association or the PRC Company Law
concerning the affairs of our company or with respect to the transfer of our
shares, are to be resolved through arbitration by arbitration organizations in
Hong Kong or China, rather than through a court of law. On June 18, 1999, an
arrangement was made between Hong Kong and the PRC for the mutual enforcement
of arbitral awards. This new arrangement was approved by the Supreme People's
Court of the PRC and the Hong Kong Legislative Council, and became effective
on February 1, 2000. So far as we are aware, no action has been brought in
China by any shareholder to enforce an arbitral award, and we are uncertain as
to the outcome of any action brought in China to enforce an arbitral award
granted to shareholders.

ITEM 4.  INFORMATION ON THE COMPANY

         A.   HISTORY AND DEVELOPMENT OF THE COMPANY

         Our legal and commercial name is China Petroleum & Chemical
Corporation. Our head office is located at A6, Huixindong Street, Chaoyang
District, Beijing 100029, the People's Republic of China and our telephone
number is (8610) 6499-0060. We have appointed SINOPEC USA Inc., 150 E. 52nd
St., 28th Fl., New York, NY 10022, USA (telephone number: (212) 759-5085) as
our agent for service of processes for actions brought under the U.S.
securities laws.

         We were established as a joint stock limited company on February 25,
2000 under the Company Law of the PRC with Sinopec Group Company as the sole
shareholder. Our principal businesses consist of petroleum and petrochemical
businesses transferred to us by Sinopec Group Company pursuant to a
reorganization agreement. Such businesses include:

     o    exploration for and development of crude oil and natural gas;

     o    refining of crude oil and marketing and distribution of refined
          petroleum products, including transportation, storage, trading,
          import and export of petroleum products; and

     o    production and sales of petrochemical products.

         Sinopec Group Company's continuing activities consist, among other
things, of:

     o    operating certain petrochemical facilities, small capacity
          refineries and retail service stations retained by Sinopec Group
          Company;

     o    providing well survey, logging and downhole operational services;

     o    manufacturing and maintaining production equipment;

     o    providing construction services;

     o    providing utilities, such as electricity and water; and

     o    providing other operational services including transportation
          services.

         Sinopec Group Company transferred the businesses to us either by
transferring its equity holdings in subsidiaries or by transferring their
assets and liabilities. For its 13 subsidiaries with publicly traded shares,
Sinopec Group Company transferred its entire equity interests to us.

                                      12
<PAGE>

         Sinopec Group Company also agreed in the reorganization agreement to
transfer to us its exploration and production licence and all rights and
obligations under the agreements in connection with its core businesses
transferred to us. The employees relating to these assets were also
transferred to us.

         In order to expand our core businesses, prevent competition among
members of the same group and reduce related party transactions, since 2001 we
have acquired consecutively from Sinopec Group Company Sinopec National Star,
Sinopec Maoming's ethylene facility, Tahe Petrochemical and Xi'an
Petrochemical. We have also divested certain auxiliary assets.

         In 2004, we obtained approval from the National Development and
Reform Commission, or NDRC, to issue 10-year term corporate bonds in China at
a coupon rate of 4.61%, with an aggregate principal amount of RMB 3.5 billion.
Such issuance was successfully completed as of March 8, 2004.

         We were approved by our shareholders at the extraordinary general
meeting held on December 21, 2004 to acquire certain operating assets of
Sinopec Group Company. The total consideration payable was RMB 5.360 billion.
In connection with these acquisitions, we disposed certain downhole operation
assets to Sinopec Group Company for a consideration of RMB 1.712 billion.
After offsetting our payables and receivables in connection with these
transactions, RMB 3.648 billion was payable in cash to Sinopec Group Company.

         We privatized Sinopec Beijing Yanhua Petrochemical Company Limited
("Beijing Yanhua") by way of merger through Beijing Feitian Petrochemical Co.,
Ltd. ("Beijing Feitian"), a wholly owned subsidiary of ours established for the
purpose of such merger. Beijing Feitian intends to purchase the listed shares
of Beijing Yanhua from shareholders at HK$3.80 per share in cash, and the
aggregate consideration for such merger is approximately RMB 4.076 billion. The
merger was approved by the board of directors of Beijing Feitian, the board of
directors and the supervisory committee of Beijing Yanhua, the general meeting
of shareholders of Beijing Feitian, the extraordinary general meeting of
shareholders and the general meeting of independent shareholders of Beijing
Yanhua. The approvals of domestic and overseas regulators had been obtained and
the merger became effective in June 2005.

         B.   BUSINESS OVERVIEW

Exploration and Production

         Overview

         We currently explore for, develop and produce crude oil and natural
gas in a number of areas across China. As of December 31, 2004, we held 195
production licenses with terms ranging from seven (7) to fifty-five (55)
years, which were equal to or longer than the maximum numbers of years of the
estimated life of the reserves as evaluated by us as of December 31, 2004. Our
production licenses are renewable upon our application 30 days prior to
expiration. During the term of our production license, we will pay an annual
production right usage fee of RMB 1,000 (US$120.8) per square kilometers.
Among our oil and gas fields, the Shengli field in Shandong province is the
second largest oil field in China and accounted for approximately two-thirds
of our total production in 2004. In 2004, we produced an average of 843,000
barrels-of-oil equivalent per day, of which approximately 88.85% was crude oil
and 11.15% was natural gas.

         As of December 31, 2004, we held 371 exploration licenses for various
blocks in which we engaged in exploration activities. The maximum term of our
exploration licenses is seven (7) years. Our exploration licenses may be
renewed upon our application 30 days prior to expiration of the original term
with each renewal for a two-year term. We are obligated to make an annual
minimum exploration investment relating to the exploration blocks in respect of
which the exploration licenses are issued. In addition, we are also obligated
to pay an annual exploration license fee starting from RMB 100 (US$12.1) per
square kilometer up to RMB 500 (US$60.4) per square kilometer. We are entitled
under state laws and regulations to apply for reduction and exemption of
exploration license fee for exploration in the western region of the PRC.

         Properties

         We currently operate 16 oil and gas producing fields, each of which
consists of many oil and gas producing blocks and all of which are located in
China.

                                      13
<PAGE>

         Shengli field is our most important producing oil field and the
second largest producing oil field in China. It consists of 68 producing
blocks of various sizes extending over an area of 61,000 square kilometers in
northern Shandong province. In 2004, Shengli field produced 190 million
barrels of crude oil and 31.78 billion cubic feet of natural gas, with an
average daily production of 533,000 barrels-of-oil equivalent, accounting for
approximately 63.26% of our total crude oil and natural gas production for the
year.

         Oil and Natural Gas Reserves

         Our estimated proved reserves of crude oil and natural gas as of
December 31, 2004 were 3,773 million barrels-of-oil equivalent, (including
3,267 million barrels of crude oil and 3,033 billion cubic feet of natural
gas), up 0.94% compared with the amount as at December 31, 2003. Our estimated
proved reserves do not include additional quantities recoverable beyond the
term of the relevant production licenses, or that may result from extensions
of currently proved areas, or from application of improved recovery processes
not yet tested and determined to be economical.

         The following table contains information of our proved oil and gas
reserves in the years ended December 31, 2002, 2003 and 2004, respectively.

<TABLE>
<CAPTION>

                                                                               Years ended December 31,
                                                                          -----------------------------------
                                                                          2002           2003          2004

<S>                                                                        <C>             <C>           <C>

Proved developed and undeveloped reserves
(crude oil) (million barrels)
Beginning of year.................................................         3,215           3,320         3,257
Revisions of previous estimates...................................           119             (81)           23
Improved recovery.................................................           126             143           127
Extensions and discoveries........................................           130             146           134
Production........................................................          (270)           (271)         (274)
                                                                         --------       ---------       -------
End of year.......................................................         3,320           3,257         3,267
                                                                         ========       =========       =======
Proved developed reserves (crude oil) (million barrels)
Beginning of year.................................................         2,444           2,732         2,786
                                                                         ========       =========       =======
End of year.......................................................         2,732           2,786         2,808
                                                                         ========       =========       =======
Proved developed and undeveloped reserves
     (natural gas) (billion cubic feet)
Beginning of year.................................................         3,488           3,329         2,888
Revisions of previous estimates...................................          (133)           (649)          (95)
Extensions and discoveries........................................           153             396           447
Production........................................................          (179)           (188)         (207)
                                                                         --------       ---------       -------
End of year.......................................................         3,329           2,888         3,033
                                                                         ========       =========       =======
Proved developed reserves (natural gas) (billion cubic feet)
Beginning of year.................................................         1,183           1,056         1,249
                                                                         ========       =========       =======
End of year.......................................................         1,056           1,249         1,398
                                                                         ========       =========       =======
</TABLE>


         Oil and Natural Gas Production

         The following tables sets forth the average daily production of crude
oil and natural gas for the years ended December 31, 2002, 2003 and 2004.

<TABLE>
<CAPTION>

                                                                           For the Years Ended December 31,
                                                                         ------------------------------------
                                                                          2002          2003           2004
                                                                         -------       ------        --------
                                                                                (in thousand barrels)

<S>                                                                          <C>           <C>            <C>

Average Daily Crude Oil Production
Shengli..........................................................            520           518            519
Zhongyuan........................................................             74            70             65
Xibei............................................................             48            59             69
Henan............................................................             37            36             37
Jiangsu..........................................................             31            31             31
Others...........................................................             29            28             28
                                                                          --------       ------         -------
Total Production.................................................            739           742            749
                                                                          ========       ======         =======

                                      14
<PAGE>

                                                                             For the Years Ended December 31,
                                                                        ---------------------------------------
                                                                          2002          2003             2004
                                                                        --------       ------          --------
                                                                               (in million cubic feet)
Average Daily Natural Gas Production
Shengli..........................................................             73            78             87
Zhongyuan........................................................            157           165            169
Xibei............................................................             53            44             47
Henan............................................................             11            10             11
Jiangsu..........................................................              2             9              5
Xinan............................................................            145           165            185
Others...........................................................             49            43             63
                                                                        ---------       --------        -------
Total Production.................................................            490           514            567
                                                                        =========       ========        =======

</TABLE>

         Lifting Cost Data

         The following table sets forth our average lifting costs per
barrel-of-oil equivalent of crude oil and natural gas produced, average sales
prices per barrel of crude oil and average sales prices per thousand cubic
meters of natural gas for the years ended December 31, 2002, 2003 and 2004.

<TABLE>
<CAPTION>

                                                                         Total         Shengli        Others
                                                                         -----         -------        ------
                                                                         (US$)          (US$)          (US$)

<S>                                                                        <C>           <C>            <C>

For the year ended December 31, 2004
Average petroleum lifting cost per BOE...........................          6.72          6.66           6.83
Average realized sales price
   Per barrel of crude oil.......................................         33.28         33.74          32.22
   Per thousand cubic meters of natural gas......................         74.34         86.74          73.19
For the year ended December 31, 2003
Average petroleum lifting cost per BOE...........................          6.47          6.46           6.48
Average realized sales price.....................................
   Per barrel of crude oil.......................................         27.56         27.87          26.83
   Per thousand cubic meters of natural gas......................         71.95         70.64          72.06
For the year ended December 31, 2002
Average petroleum lifting cost per BOE...........................          6.12          5.76           6.78
Average realized sales price.....................................
   Per barrel of crude oil.......................................         22.42         22.59          21.97
   Per thousand cubic meters of natural gas......................         69.08         55.07          70.25

</TABLE>

         Exploration and Development Activities

         The following table sets forth the numbers of our exploratory and
development wells, including a breakdown of successful or productive ones and
dry ones, for the years ended December 31, 2002, 2003 and 2004.

<TABLE>
<CAPTION>

                                                                 Total       Shengli         West         Others
                                                                 -----       -------         ----         ------

<S>                                                                <C>          <C>           <C>          <C>

For the year ended December 31, 2004
Exploratory
     -- Successful....................................             300          149           10           141
     -- Dry...........................................             290           51           15           224
Development
     -- Productive....................................           2,365          999           56         1,310
     -- Dry...........................................              17            -           17             -
For the year ended December 31, 2003
Exploratory
     -- Successful....................................             295          151           16           128
     -- Dry...........................................             265           88           21           156
Development
     -- Productive....................................           1,880          909           99           872
     -- Dry...........................................              10            4            3             3

                                      15
<PAGE>

For the year ended December 31, 2002
Exploratory
     -- Successful....................................             289          146            -           143
     -- Dry...........................................             217           80            -           137
Development
     -- Productive....................................           2,186        1,026            -         1,160
     -- Dry...........................................              14            6            -             8

</TABLE>

         Change of major oil and gas assets

         In 2004 our capital expenditure on oil and gas fields was RMB 21.24
billion. In respect of oil field development, we drilled 2,365 development
wells with a footage of 5,125 kilometers in 2004, and established new
capacities for production of 6.09 million tonnes crude oil per annum and 1.015
billion cubic meter natural gas per annum.

Refining and Marketing and Distribution of Refined Petroleum Products

         Overview

         We processed approximately 133 million tonnes of crude oil in 2004,
representing approximately 51.3% of China's national crude oil throughput. We
produce a full range of refined petroleum products. The following table sets
forth our production of our principal refined petroleum products for the years
ended December 31, 2002, 2003 and 2004.

<TABLE>
<CAPTION>

                                                                For the Years Ended December 31,
                                                         ----------------------------------------------
                                                           2002                2003               2004
                                                         ---------         ----------           -------
                                                                       (in million tonnes)
<S>                                                         <C>               <C>                 <C>
Gasoline.......................................             19.6              21.7                23.6
Diesel.........................................             37.7              41.7                50.9
Kerosene including jet fuel....................              5.1               5.3                 6.4
Light Chemical feedstock.......................             15.0              16.5                17.7
Lubricant......................................              0.9               1.0                 1.3
Liquefied petroleum gas........................              5.1               6.2                 7.1
Fuel oil.......................................              4.5               7.3                 7.8

</TABLE>


         Gasoline and diesel are our largest revenue producing products, and
are sold mostly through our marketing and distribution segment through both
wholesale and retail channels. We use most of our production of chemical
feedstock as feedstock for our own chemical operations. Most of our production
of other refined products are sold domestically to a wide variety of
industrial and agricultural customers, and a small amount are exported.

         Refining Facilities

         We operate 26 refineries in China, all of which are located in our
principal market. As of December 31, 2004, our consolidated primary
distillation capacity of 155 million tonnes per annum was the largest in
China, representing approximately 48.7% of the total domestic capacity.

         The following table sets forth our total primary distillation
capacity per annum, crude oil throughputs and crude oil distillation capacity
utilization rate as of and for the years ended December 31, 2002, 2003 and
2004.

<TABLE>
<CAPTION>

                                                                            As of and for the Years
                                                                               Ended December 31,
                                                                        -----------------------------------
                                                                          2002        2003           2004
                                                                        --------    ---------      --------
<S>                                                                      <C>          <C>            <C>
Primary distillation capacity (million tonnes per annum)..........       132.4        142.3          155.2
Crude oil throughputs (million tonnes)............................       105.0        116.3          132.9
Crude oil distillation capacity utilization rate..................        80.6%(1)     87.8%(1)       93.4%(1)

----------------------

(1)  The primary distillation capacity at the beginning of the years were used in the calculations of the
     utilitzation rates.

</TABLE>

         In 2004, our light products yield was 74.0%, up by 0.22 percentage
point from that in 2003, and our refining yield was 93.1%, up by 0.46
percentage point from that in 2003.

         The following table sets forth the primary distillation capacity per
annum, crude oil throughput and utilization rate calculated based on primary
distillation capacity per annum at each year-end as of and for the

                                      16
<PAGE>

years ended December 31, 2002, 2003 and 2004 of each of our 13 largest
refineries. These refineries represent 77.6% of our total primary distillation
capacity per annum as of December 31, 2004.

<TABLE>

                              2002                                    2003                                 2004
             --------------------------------------  -----------------------------------  -------------------------------------
                Primary                                Primary                               Primary
              Distillation  Crude Oil                Distillation   Crude Oil              Distillation  Crude Oil
               Capacity    Throughput                  Capacity    Throughput                Capacity    Throughput
                Million      Million    Utilization    Million       Million  Utilization    Million      Million    Utilization
Refinery        Tonnes       Tonnes      Rate (%)       Tonnes       Tonnes    Rate (%)      Tonnes       Tonnes       Rate (%)
--------        ------       ------      --------       ------       ------    --------      ------       ------       --------
<CAPTION>

<S>               <C>          <C>          <C>          <C>           <C>         <C>          <C>          <C>          <C>
Maoming.....      13.5         10.4         77.4         13.5          11.0        82.1         13.5         13.2         97.9
Zhenhai.....      14.0         11.9         84.9         17.0          13.6        80.2         20.0         16.0         80.0
Qilu........       8.5          7.5         87.9         10.5           8.0        75.7         10.5          8.8         87.6
Yanshan.....       8.0          7.0         86.9          8.0           7.0        87.6          8.0          7.8         97.9
Guangzhou...       7.7          6.7         87.5          7.7           6.9        89.0          7.7          7.4         95.8
Gaoqiao.....       7.3          6.5         89.1         10.8           8.4        78.0         11.0          9.1         82.7
Jinling.....      10.5          6.3         60.3         10.5           7.2        68.1         13.0          8.2         63.1
Tianjun.....       5.0          4.1         83.0          5.0           4.7        93.6          5.0          4.9         98.8
Yangzi......       6.0          4.9         82.3          8.0           6.3        78.3          8.0          6.4         79.8
Shanghai....       8.8          7.4         84.4          8.8           8.6        97.8          8.8          9.1        103.5
Changling...       5.0          3.3         65.7          5.0           3.5        70.4          5.0          4.3         86.0
Luoyang.....       5.0          4.3         86.7          5.0           4.6        91.4          5.0          5.2        104.2
Jinmen......       5.0          2.9         58.6          5.0           3.2        63.6          5.0          3.7         73.4

</TABLE>

         Change of Major Refining Assets

         In 2004, our capital expenditure for the refining segment was RMB
14.3 billion. We have put on 31 sets of new or revamped refining units. As a
result, we have increased our overall reforming capacity by 8.3 million tonnes
per annum, with 3 million tonnes increased at our Zhenhai refinery, and
increase of hydrorefining capacity by 4 million tonnes per annum and coking
capacity by 3.9 million tonnes per annum. In addition, we have put to use our
imported crude oil pipeline connecting Ningbo, Shanghai and Nanjing.

Marketing, Sales and Distribution of Refined Petroleum Products

         Overview

         We operate the largest sales and distribution system for refined
petroleum products in China. We estimate we have a market share of
approximately 60.2% in China based on our sales volume of gasoline, diesel and
kerosene including jet fuel in 2004.

         In 2004, we distributed and sold in China approximately 94.6 million
tonnes of gasoline, diesel and kerosene including jet fuel, among which 53.3
million tonnes were sold through approximately 26,581 service stations that we
owned and operated as at the end of 2004 and 19.7 million tonnes were sold
through our direct distribution network, and the remaining 21.7 million tonnes
were sold through our wholesale network. Most of the refined products sold by
us are produced internally. Specifically in 2004, approximately 85.4% of our
gasoline sales volume and approximately 86.6% of our diesel sales volumes were
produced internally by us.

         In 2004, our capital expenditure for the marketing and distribution
segment was RMB 16.7 billion, which is mainly used to build new channels for
gasoline transportation, and to further improve gasoline sales network through
building and renovating existing service stations. These efforts helped
consolidate our leading position in major markets and further enhanced our
brand recognition and customer loyalty.

         Retail and Direct Distribution

         All of our retail sales are made through a network of service
stations and petroleum shops which operate under the Sinopec brand. Through
this unified network we are more able to implement consistent pricing
policies, maintain both product and service quality standards and more
efficiently manage retail distribution in our principal market.

         In 2004, we sold approximately 53.3 million tonnes of gasoline and
diesel through our retail network, representing approximately 59.9% of our
total gasoline and diesel sales volume. Our retail market share in 2004

                                      17
<PAGE>

was approximately 70% in our principal market. Our retail network consists
principally of our wholly-owned and operated service stations. In addition, we
have franchised the Sinopec brand to 3,482 service stations that are operated
by third parties.

         Most of our wholly-owned service stations are located in central
commercial districts or relatively high traffic areas. They typically have
relatively long operating histories compared with other service stations and,
therefore, often enjoy better brand name recognition and higher sales volume.

         We also make direct distribution sales of gasoline, diesel and
kerosene including jet fuel to various corporate customers. In 2004, we sold
approximately 19.7 million tonnes of gasoline, diesel and kerosene including
jet fuel through direct distribution to these customers, including 3.1 million
tonnes of gasoline and 16.2 million tons of diesel.

         Wholesale

         In 2004, we sold approximately 21.7 million tonnes of gasoline,
diesel, kerosene including jet fuel through wholesale channels, representing
approximately 22.9% of our total sales volume of gasoline, diesel, and
kerosene including jet fuel. Our wholesale sales include sales to large
customers and independent distributors as well as sales to certain special
customers designated by the central government.

         We sold approximately 11.3 million tonnes of gasoline, diesel and
kerosene including jet fuel to certain special customers designated by the
central government, representing approximately 52% of our aggregate wholesale
volume of these products in 2004. Among our sales to these special customers,
we sold approximately 903,000 tonnes of gasoline, 5.1 million tonnes of diesel,
5.3 million tonnes of kerosene including jet fuel, representing, respectively,
3.3%, 8.3% and 91.9% of our total sales volume of the respective products.
These special customers include the military, the railway, airlines, marine and
utility industries and these sales are made at prices and in volumes directly
or indirectly determined by the PRC government.

         Among our wholesale sales in 2004, we sold approximately 10.4 million
tonnes of gasoline, diesel and kerosene including jet fuel through wholesale
centers located in the 19 provinces in our principal market and our three
branch sales companies outside our principal market, representing 48% of our
total wholesale volume of the same products. Most sales by the wholesale
centers are made to large customers and independent distributors from various
industries such as public transportation, tourism and agricultural industries.

         Through our wholesale centers, we operate 558 storage facilities with
a total capacity of approximately 13 million cubic meters, substantially all
of which are wholly-owned by us. Our wholesale centers are connected to our
refineries by railway, waterway and, in some cases, by pipelines. We also own
some dedicated railways, oil wharfs, oil barges, rail tankers and oil trucks.

Chemicals

         Overview

         We are the largest petrochemical producer in China. We produce the
full range of petrochemical products including intermediate petrochemicals,
synthetic resins, synthetic fiber monomers and polymers, synthetic fibers,
synthetic rubber and chemical fertilizers. Synthetic resins, synthetic fibers,
synthetic rubber, chemical fertilizers and some intermediate petrochemicals
comprise a significant majority of our external sales. Synthetic fiber
monomers and polymers and intermediate petrochemicals, on the other hand, are
mostly internally consumed as feedstock for the production of other products.
Our petrochemical operations are integrated with our oil and gas exploration
and production and refining and marketing businesses. Because of strong
domestic demand, most of our petrochemical products are sold in the domestic
market.

         Products

         Intermediate Petrochemicals

         We are the largest ethylene producer in China. Our rated ethylene
capacity of 3.9 million tonnes per annum, which represented 64.3% of the total
domestic ethylene capacity as of December 31, 2004. In 2004, we produced 4.1
million tonnes of ethylene, representing approximately 65% of the total
domestic output, with a

                                      18
<PAGE>

capacity utilization rate of 104.6%. Nearly all of our olefins production is
used as feedstock for our petrochemical operations.

         We produce aromatics mainly in the forms of benzene and xylene which
are used primarily as feedstock for purified terephthalic acid, or PTA, the
preferred raw material for polyester. We are the largest aromatics producer in
China. Our annual rated capacities for benzene and xylene were 1.3 million
tonnes and 1.8 million tonnes per annum, respectively, as of December 31,
2004. In 2004, we produced 1.4 million tonnes of benzene and 1.5 million
tonnes of xylene.

         Organic chemicals extracted mainly from olefins and aromatics are
also intermediate petrochemicals and are essential raw materials for synthetic
resins, synthetic rubber and synthetic fibers. We are the largest producer of
butanol, styrene, paraxylene, vinyl acetate, phenol and acetone in China.

         The following table sets forth our rated capacity per annum, capacity
utilization rate, production volume and major plants of production as of or
for the year ended December 31, 2004 for our principal intermediate
petrochemical products.

<TABLE>
<CAPTION>

                                    Our Rated         Utilization          Our
                                       Capacity            Rate        Production       Major Plants of Production
                                   -----------------  -------------    -----------      --------------------------
                                   (thousand tonnes                     (thousand
                                      per annum)        (percent)        tonnes)

<S>                                     <C>              <C>             <C>         <C>
Ethylene.....................           3,895            104.6           4,074.3      Yanhua, Shanghai, Yangzi, Qilu,
                                                                                      Maoming, Guangzhou, Tianjin and
                                                                                                 Zhongyuan

Propylene....................           3,338.5          113.5           3,789.9      Yanhua, Shanghai, Yangzi, Qilu,
                                                                                       Maoming, Guangzhou, Tianjin,
                                                                                       Zhongyuan, Gaoqiao, Anqing,
                                                                                        Jinan, Jingmen and Wuhan

Benzene......................           1,259.5          113.5           1,429.1      Yanhua, Shanghai, Yangzi, Qilu,
                                                                                      Guangzhou, Zhenhai, Tianjin and
                                                                                                  Luoyang

Acetic acid..................             130             81.4             105.9           Shanghai and Yangzi

Styrene......................             464             76.6             355.2        Yanhua, Qilu and Guangzhou


Xylene.......................           1,759             87.5           1,539.9      Shanghai, Yangzi, Qilu, Tianjin
                                                                                                and Luoyang

Phenol.......................             350             70.7             247.4            Yanhua and Gaoqiao

</TABLE>

         Synthetic Resins

         Synthetic resins are a core downstream product group. Our principal
synthetic resin products are polyethylene, polypropylene, polyvinyl chloride,
or PVC, and polystyrene. We are the largest producer of polyethylene,
polypropylene and polystyrene in China. Synthetic resins are widely used in
various sectors including agriculture, construction, automobile and consumer
product industries.

         The following table sets forth our rated capacity per annum, capacity
utilization rate, production volumes and major plants of production for each
of our principal synthetic resins as of or for the year ended December 31,
2004.

<TABLE>
<CAPTION>

                                       Our Rated       Utilization         Our
                                       Capacity            Rate        Production       Major Plants of Production
                                       ----------      ------------    ----------       --------------------------
                                    (thousand tones                     (thousand
                                      per annum)        (percent)        tonnes)

<S>                                     <C>                 <C>            <C>        <C>
Polyethylene.....................       2,663               107.1          2,852.1    Yanhua, Shanghai, Yangzi, Qilu,
                                                                                      Maoming, Guangzhou, Tianjin and
                                                                                                 Zhongyuan

                                      19
<PAGE>

Polypropylene....................       2,533               109.9          2,783.5       Yanhua, Shanghai, Yangzi,
                                                                                     Guangzhou, Wuhan, Jingmen, Qilu,
                                                                                      Maoming, Tianjin, Zhongyuan and
                                                                                                  Fujian

Polyvinyl chloride...............         322.5              71.1            229.3                 Qilu

Polystyrene......................         216                71.7            154.9      Yanhua, Qilu and Guangzhou

</TABLE>

         Synthetic Fiber Monomers and Polymers

         Our principal synthetic fiber monomers and polymers are purified
teraphthalic acid, ethylene glycol, acrylonitrile, caprolactam and polyster.
Based on our 2004 production, we are the largest producer of all of these
synthetic fiber monomers and polymers except for acrylonitrile in China. Most
of our production of synthetic fiber monomers and polymers are used as
feedstock for synthetic fibers.

         The following table sets forth our rated capacity per annum, capacity
utilization rate, our production volume and major plants of production as of
or for the year ended December 31, 2004 for each type of our principal
synthetic fiber monomers and polymers.

<TABLE>
<CAPTION>

                                        Our Rated        Utilization         Our
                                        Capacity             Rate         Production      Major Plants of Production
                                        --------             ----         ----------      --------------------------
                                    (thousand tonnes                      (thousand
                                       per annum)        (percent)         tonnes)

<S>                                     <C>                 <C>            <C>           <C>
Purified teraphthalic acid.......       2,360               109.0          2,571.7       Shanghai, Yangzi, Yizheng,
                                                                                            Tianjin and Luoyang

Ethylene glycol..................         732.6              81.7            598.7      Yanhua, Shanghai, Yangzi and
                                                                                                  Tianjin

Acrylonitrile....................         250               102.8            256.9     Shanghai, Gaoqiao, Anqing and
                                                                                                    Qilu

Caprolactam......................         135               106.7            144.0        Shijiazhuang and Baling

Polyester chips................         2,606.6              90.1          2,349.7       Yanhua, Shanghai, Yizheng,
                                                                                            Tianjin and Luoyang
</TABLE>

         Synthetic Fibers

         We are the largest producer of polyester and acrylic fibers in China.
Our principal synthetic fiber products are polyester fiber, acrylic fiber,
nylon, vinylon fiber and polypropylene fiber.

         The following table sets forth our rated capacity per annum, capacity
utilization rate, production volume and major plants of production for each
type of our principal synthetic fibers as of and for the year ended December
31, 2004.

<TABLE>
<CAPTION>

                                       Our Rated        Utilization        Our
                                        Capacity           Rate         Production       Major Plants of Production
                                    ----------------    ------------    ----------       --------------------------
                                    (thousand tonnes                    (thousand
                                       per annum)        (percent)       tonnes)

<S>                                       <C>                <C>           <C>         <C>
Polyester fiber................           1,448.4            87.6          1,268.5     Yizheng, Shanghai, Tianjin and
                                                                                                  Luoyang

Acrylic fiber..................             314.8           113.8            358.1       Shanghai, Anqing and Qilu

Nylon..........................              18.3            38.3              7.0                 Baling


                                      20
<PAGE>

Polypropylene fiber............              17              78.2             13.3                Shanghai

</TABLE>

         Synthetic Rubbers

         Our principal synthetic rubbers are cis-polybutadiene rubber, styrene
butadiene rubber, or SBR, styrene butadiene-styrene thermoplastic elastomer
and isobutadiene isoprene rubber, or IIR. Based on our 2004 production, we are
the largest producer of SBR rubber and cis-polybutadiene rubber and the only
producer of IIR in China.

         The following table sets forth our rated capacity per annum, capacity
utilization rate, production volume and major plants of production as of or
for the year ended December 31, 2004 for each of our principal synthetic
rubbers.

<TABLE>
<CAPTION>

                                       Our Rated        Utilization        Our
                                        Capacity           Rate         Production       Major Plants of Production
                                       -----------      ------------    ----------       --------------------------
                                    (thousand tonnes                    (thousand
                                       per annum)        (percent)       tonnes)

<S>                                         <C>            <C>              <C>       <C>
Cis-polybutadiene rubber.........           216            125.2            270.4     Yanhua, Qilu, Maoming and Gaoqiao

Styrene butadiene rubber.........           194.5           71.8            139.6     Yanhua, Qilu, Maoming and Gaoqiao

Styrene-butadiene-styrene
thermoplastic elastomers ........            70            162.3            113.6                  Yanhua

Isobulylene isoprene rubber......            30            125.3             37.6                  Yanhua

</TABLE>

         Chemical Fertilizers

         We produce synthetic ammonia and urea. Our synthetic ammonia is used
to manufacture urea, caprolactam and acrylic nitrile.

         The following table sets forth our rated capacity per annum, capacity
utilization rate, our production volume and major plants of production for
ammonia and urea as of or for the year ended December 31, 2004.

<TABLE>
<CAPTION>

                                       Our Rated        Utilization
                                        Capacity           Rate       Our Production     Major Plants of Production
                                       -----------      ------------  --------------     --------------------------
                                    (thousand tonnes                    (thousand
                                       per annum)        (percent)       tonnes)

<S>                                       <C>                <C>          <C>            <C>

Ammonia......................             2,235              70.7         1,579.9         Zhenhai, Jinling, Anqing,
                                                                                      Jiujiang, Qilu, Hubei and Baling

Urea.........................             3,730              70.5         2,630           Zhenhai, Jinling, Anqing,
                                                                                      Jiujiang, Qilu, Hubei and Baling

</TABLE>

         Change of Major Petrochemical Assets

         In 2004, our capital expenditure for the chemical segment was RMB
11.0 billion. Qilu increased ethylene production capacity by 270,000
tonnes per annum, PVC production capacity by 370,000 per annum, and ionic film
sodium hydroxide production capacity by 200,000 tonnes per annum; Yizheng
increased polyester production capacity by 210,000 tonnes per annum;
Shanghai increased polyester production capacity by 150,000 tonnes per
annum; Zhenhai increased polypropylene production capacity by 200,000 tonnes
per annum; and Gaoqiao increased phenol production capacity by 125,000 tonnes
per annum and acetone production capacity by 75,000 tonnes per annum.

                                      21
<PAGE>

         Marketing and Sales of Petrochemicals

         Price and volume of petrochemical sales are market driven. The
southern and eastern regions in China, where most of our petrochemical plants
are located, constitute the major petrochemical market in China. Our proximity
to the major petrochemical market gives us a competitive advantage over our
competitors.

         Our principal sales and distribution channels consist of direct sales
to end-users, most of which are large and medium size manufacturing
enterprises, and sales to distributors in our national sales network. In 2004,
we sold approximately 62.7% of our petrochemical products directly to
end-users and 37.3% to our distributors. We also provide after-sale services,
including technical support and technology assistance, to our customers.

         In addition, we also increased sales activities through our
business-to-business petrochemical e-commerce platform. In 2004, sales
initiated by our e-commerce platform amounted to RMB 19.1 billion (US$2.3
billion), representing an increase of 9.14% from RMB 17.5 billion for the year
of 2003. Domain names for our e-commerce web sites are www.sinopec-ec.com and
www.sinopec-ec.com.cn.

Raw Materials

         Crude Oil

         Our most important raw material is crude oil. The following table
sets forth the sources of our crude oil supply and each source as a percentage
of our total crude oil supply for the years ended December 31, 2002, 2003 and
2004.

<TABLE>
<CAPTION>

                                                                                                   Change in 2004
                                         2002                 2003                 2004          compared with 2003
                                   -----------------    -----------------     ---------------    ------------------
Source of Supply                   (million tonnes)     (million tonnes)     (million tonnes)     (in percentage)

<S>                                       <C>                  <C>                  <C>                  <C>
Self-supply.....................          28.9                 28.2                 28.1                -0.2%
PetroChina......................          14.6                 13.1                 10.3               -21.2
CNOOC...........................           6.2                  5.6                  6.7                20.1
Import..........................          56.7                 71.1                 89.0                25.1
                                   ----------------      ----------------      -------------      -----------------
   Total........................         106.4                118.0                134.2                13.7%
                                   ================      ================      =============      ==================

</TABLE>

Competition

         Exploration and Production

         Because our production of crude oil has only constituted
approximately 21% of our crude oil requirements, we generally do not compete
for crude oil customers.

         Refining and Marketing of Refined Petroleum Products

         Market participants compete primarily on the basis of quality of
products and service, efficiency of operations including proximity to
customers and awareness of brand name. We believe that we have a competitive
advantage in our principal market over many of our competitors in these
aspects arising from the quality of our personnel, technology, assets and
organizational management.

         Petrochemicals

         Our proximity to customers has given us significant competitive
advantages. Our petrochemical production facilities are located in the eastern
and southern regions in China, an area which has experienced higher economic
growth rates in China in the past two decades. Proximity of our production
facilities to our markets has given us an advantage over our competitors in
terms of easy access to our customers, resulting in reduced transportation
costs, more reliable delivery of products and better service to customers.

         We expect competition in the petrochemicals market to increase
substantially as the PRC markets open up to foreign competitors. Such
competitors are likely to be large, reputable foreign companies producing high

                                      22
<PAGE>

quality products at competitive prices. There can be no assurance that such
foreign competition will not adversely affect our existing market position and
our results of operations in our petrochemicals business.

         Competition and Opportunities after China's Accession to the WTO

         China became a member of the WTO in December 2001. In line with the
general progress of its economic reform programs and as part of its WTO
commitments, China has reduced import tariffs on a wide range of products
including petrochemical products in 2002. In addition, China has agreed to
further lower tariff and eliminate quotas, grant foreign companies
distribution rights of refined petroleum products and eventually lift its
restrictions that limit competition by foreign companies in the PRC petroleum
and petrochemicals industry. To the extent these restrictions are relaxed, we
are likely to face more fierce competition in our businesses. In anticipation
of the increased competition, we have taken measures to improve our own
competitiveness.

Patents and Trademarks

         In 2004, we applied for 798 patents in China, of which 639 have been
granted patent rights, making us own a total of 1,893 patents in China. In
addition, Sinopec Group Company owns a total of 3,012 patents in China. We may
use certain patents of Sinopec Group Company under royalty-free licenses.
These patents expire from time to time and cover many products, processes and
product uses. We also have royalty-free licenses from Sinopec Group Company to
use certain Sinopec Group Company's trademarks and brands for our products and
services. Our trademark licenses from Sinopec Group Company are for a term of
ten years commencing on February 25, 2000.

Regulatory Matters

         Overview

         China's petroleum and petrochemical industry has seen significant
liberalization in the past ten years. However, the exploration, production,
marketing and distribution of crude oil and natural gas, as well as the
production, marketing and distribution of certain refined oil products are
still subject to regulation of many government agencies including:

         National Development and Reform Commission ("NDRC")

         The NDRC is responsible for formulating and implementing key policies
in respect of petroleum and petrochemical industry, including:

     o    Formulating guidance plan for annual production, import and export
          amount of crude oil, natural gas and gasoline nationwide based on
          its forecast on macro economic conditions in China;

     o    Publishing guidance prices for certain refined products, including
          gasoline and diesel;

     o    Approving domestic and overseas resource investment projects whose
          capital expenditure is in excess of certain amount; and

     o    Approving Sino-foreign cooperation projects that are in excess of
          certain investment limits.

         The Ministry of Commerce ("MOFCOM")

         MOFCOM is responsible for examining and approving production sharing
contracts, Sino-foreign equity joint venture contracts and Sino-foreign
cooperation joint venture contracts for oil and gas development within PRC. It
is also responsible to issue quotas and licenses for import and export of
crude oil and refined oil.

         Ministry of Land and Resources ("MLR")

         The MLR is responsible for issuing the licenses that are required to
explore and produce crude oil and natural gas in China.

                                      23
<PAGE>

         Regulation of Exploration and Production

         Exploration and Production Rights

         The PRC Constitution provides that all mineral and oil resources
belong to the state. In 1986, the standing committee of the National People's
Congress passed the Mineral Resources Law which authorizes the Ministry of
Land and Resources, or the MLR, to exercise administrative authority over the
exploration and production of the mineral and oil resources within the PRC,
including its territorial waters. The Mineral Resources Law and its
supplementary regulations provide the basic legal framework under which
exploration licenses and production licenses are granted. The MLR has the
authority to grant exploration licenses and production licenses on a
competitive bidding or other basis it considers appropriate. Applicants for
these licenses must be companies approved by the State Council to engage in
oil and gas exploration and production activities. Currently, only Sinopec
Group Company, China National Petroleum Corporation and CNOOC Group have
received such approval.

         Applicants for exploration licenses must first register with the MLR
blocks in which they intend to engage in exploration activities. The holder of
an exploration license is obligated to make an annual minimum exploration
investment relating to the exploration blocks in respect of which the license
is issued. Investment ranges from RMB 2,000 per square kilometer for the
initial year to RMB 5,000 for the second year and to RMB 10,000 for the third
and subsequent years. Additionally, the holder has to pay an annual
exploration license fee of RMB 100 per square kilometer for each of the first
three years and increases by an additional RMB 100 per square kilometer per
year for subsequent years up to a maximum of RMB 500 per square kilometer. The
maximum term of an exploration license is 7 years. The exploration license may
be renewed upon application by the holder 30 days prior to expiration of the
original term with each renewal for a two-year term.

         At the exploration stage, an applicant can also apply for a
progressive exploration and production license that allows the holder to test
and develop reserves not yet fully proved. The progressive exploration and
production license has a maximum term of 15 years. Upon the reserves becoming
proved for a block, the holder must apply for a full production license in
order to undertake production.

         The MLR issues full production licenses to applicants on the basis of
the reserve reports approved by relevant authorities. The maximum term of a
full production license is 30 years unless a special dispensation is given by
the State Council. Due to a special dispensation granted to us by the State
Council, the maximum term of our full production licenses is 55 years. The
full production license is renewable upon application by the holder 30 days
prior to expiration. A holder of the full production license has to pay an
annual full production right usage fee of RMB 1,000 per square kilometer.

         All companies approved by the State Council to engage in oil and gas
exploration and production activities may apply for exploration and production
licenses for onshore and off-shore oil and natural gas resources without
geographical restrictions. We have obtained the exploration and production
license of offshore oil and natural gas resources in China after we acquired
Sinopec National Star.

         Exploration and production licenses do not grant the holders the
right to enter upon any land for the purpose of exploration and production.
Holders of exploration and production licenses must separately obtain the
right to use the land covered by the licenses, and current owners of the
rights to use such land may transfer or lease the land to the license holder.

         Price of Crude Oil

         The PRC government no longer regulates crude oil prices and generally
allows crude oil producers and buyers to negotiate the prices. Any premiums or
discounts in relation to the crude oil prices are subject to the agreements
between the parties.

         Volume and Price of Natural Gas

         The NDRC formulates the annual natural gas supply guidelines which
require natural gas producers to distribute specified amount of natural gas to
specified fertilizer producers. The actual production level of natural gas
(excluding the amount supplied to the fertilizer producers) is determined by
the natural gas producers themselves.

                                      24
<PAGE>

         The price of natural gas has two components:

     o    ex-factory price; and

     o    pipeline transmission tariff.

         Prior to January 2002, the price of natural gas was comprised of
wellhead price, pineline transmission tariff and purification fee. In January
2002, the NDRC merged the purification fee into the wellhead price to
establish a unified natural gas ex-factory price. Ex-factory prices vary
depending on whether or not the natural gas sold is within the
government-formulated natural gas supply guidelines. For natural gas sold
within the government-formulated supply guidelines, the NDRC fixes the
ex-factory prices according to the nature of the customers. For sales of
natural gas which is produced in excess of the government-formulated natural
gas supply plan, the NDRC publishes the median guidance ex-factory price and
allows the producers to set the price within +/-10% of this guidance price.

         The NDRC sets the pipeline transmission tariff for the natural gas
transported by pipelines constructed prior to 1991. Natural gas producers also
submit to the NDRC for examination and approval any proposed transmission
tariffs for the natural gas transported by pipelines constructed after 1991
based on the capital investment made in the pipeline, the depreciation period
for the pipeline and the ability of end users to pay.

         Regulation of Refining and Marketing of Refined Petroleum Products

         Volume and Price Controls on Gasoline and Diesel

         Controls on retail and wholesale sales. Other than as described below
for sales to special customers, there are no state controls on volume
allocations of gasoline and diesel. The PRC government, to a limited extent,
continues to exercise control over gasoline and diesel prices.

         Beginning on October 17, 2001, the NDRC has started determining the
retail guidance prices of gasoline and diesel based on the FOB prices on the
Singapore, Rotterdam and New York markets, instead of solely relying on the
Singapore market alone. Within the limit of the total adjustable amount, the
NDRC may adjust the prices of gasoline and diesel according to the market
conditions in China. In addition, instead of publishing the retail guidance
prices monthly, the NDRC would publish the retail guidance prices whenever it
determines that the average price of these international markets have
fluctuated over a certain limit. The NDRC has the discretion to stop making
further adjustments to the retail guidance prices when prices on the
international markets have gone above or below a certain limit.

         We are permitted to set our own retail prices within +/-8% of the
published guidance prices. There are no government restrictions on how we set
prices for sales among our segments and subsidiaries.

         Controls on sales to special customers. The NDRC allocates to us a
quota of minimum supply of gasoline and diesel that must be made available to
meet the requirements of the military, national reserves, railways, airlines
and other similar special customers. Prices to these special customer are
benchmarked against the import parity prices for the relevant products. Except
for sales to the military and national reserve, we are permitted to charge up
to a 8% premium on the special customer prices to these special customers.

         Imports and Exports

         Other than filing with the government, state-controlled enterprises,
such as our company, are no longer subject to the import quota requirements.
Import and export by non-state-controlled enterprises continue to be subject
to quota and licensing requirements. The MOFCOM is responsible for issuing
import and export licenses. See "Item 3-Key Information-D. Risk Factors-Risks
Relating to the PRC-Entry by China into the World Trade Organization
significantly increases competition from foreign companies in our lines of
business."

                                      25
<PAGE>

         Investment

         Under the State Council's Decision on Investment System Reform,
investments without the use of government funds are only subject to a licensing
system or a registration system, as the case may be. It is the result of
reforming the old system which any investment, regardless of investors, source
of funding and nature, is subject to approval of different levels of
governments and relevant authorities based on investment scale. Under the
current system, only significant projects and the projects of restrictive
nature are subject to approval so as to maintain social and public interests,
and all other projects of any investment scale are only subject to a
registration system.

         Overseas investment by any Chinese party that is US$ 30 million or
above and falls within the category of resources development shall be verified
and approved by the NDRC. Other projects that involve the use of foreign
exchange by the Chinese party of US$ 10 million or above shall be verified and
approved by the NDRC. Any overseas investment projects other than the
foregoing shall be filed with the NDRC and/or the MOFCOM if the investor is an
enterprise managed by the central government, or approved by its local
government according to law. Domestic enterprise's establishment of overseas
enterprise (with the exception of financial enterprises) shall be approved by
the MOFCOM.

         Taxation, Fees and Royalty

         Companies which operate petroleum and petrochemical businesses in
China are subject to a variety of taxes, fees and royalties. The table below
sets forth the various taxes, fees and royalties generally payable by us or by
such companies in China.

<TABLE>
<CAPTION>

Tax Item                       Tax Base                    Tax Rate
--------                       --------                    --------

<S>                            <C>                         <C>
Corporate income tax           Taxable income              33%.

Value-added tax                Revenue                     13% for liquefied petroleum gas, natural gas, and low
                                                           density polyethylene for use as agricultural film and
                                                           fertilizers and 17% for other items. We generally charge
                                                           value-added tax to our customers at the time of
                                                           settlement on top of the selling prices of our products
                                                           on behalf of the taxation authority. We may directly
                                                           claim refund from the value-added tax collected from our
                                                           customers of any value-added tax that we paid for (i)
                                                           purchasing materials consumed during the production
                                                           process; (ii) charges paid for drilling and other
                                                           engineering services; and (iii) labor consumed during
                                                           the production process.

                               Sales volume                5% for the Sino-foreign oil and gas exploration and
                                                           development cooperative projects. However, input
                                                           value-added tax cannot be deducted.

Business tax                   Revenue from pipeline       3%.
                               transportation services

Consumption tax                Aggregate volume sold or    RMB 277.6 per tonne for gasoline and RMB 117.6 per tonne
                               self-consumed               for diesel, payable by producer.

Import tariff                  CIF China price             5% for gasoline and 6% for diesel.

Resource tax                   Aggregate volume sold or    RMB 8 to 30 per tonne for crude oil. RMB 2 to 15 per
                               self-consumed               thousand cubic meter for natural gas. The actual
                                                           applicable rate for each oil field may differ
                                                           depending on the volume of the exploration and
                                                           production activities and costs required for the
                                                           production at the particular oil field.

                                      26
<PAGE>

Compensatory fee for mineral   Revenue                     1% for crude oil and natural gas.
resources

Exploration license fee        Area                        RMB 100 to 500 per square kilometer per annum.

Production license fee         Area                        RMB 1,000 per square kilometer per annum.

Royalty fee(1)                 Production volume           Progressive rate of 0-12.5% for crude oil and 0-3% for
                                                           natural gas.

City construction tax          total amount of             1% to 7%.
                               value-added tax,
                               consumption tax and
                               business tax

Education Surcharge            total amount of             3%.
                               value-added tax,
                               consumption tax and
                               business tax

------------------

(1)  Payable only by Sino-foreign oil and gas exploration and development cooperative projects, and the
     project companies of those cooperative projects are not subject to any other resource taxes or fees.

</TABLE>

         C.   ORGANIZATIONAL STRUCTURE

         For a description of our relationship with Sinopec Group Company, see
"Item 4 -- Information on the Company -- History and Development of the
Company" and "Item 7 -- Major Shareholders and Related Party Transactions." For
a description of our significant subsidiaries, see Note 32 to our consolidated
financial statements.

         D.   PROPERTY, PLANT AND EQUIPMENT

         See "Item 4 -- Information on the Company -- Business Overview" for
description of our property, plant and equipment.

Environmental Matters

         We are subject to various national environmental laws and regulations
and also environmental regulations promulgated by the local governments in
whose jurisdictions we have operations. For example, national regulations
promulgated by the central government set discharge standards for emissions
into air and water. They also set forth schedules of discharge fees for various
waste substances. These schedules usually provide for discharge fee increases
for each incremental increase of the amount of discharge up to a certain level.
Above a certain level, the central regulations permit the local government to
order any of our facilities to cure certain behavior causing environmental
damage and subject to the central government's approval, the local government
may also issue orders to close any of our facilities that fail to comply with
the existing regulations.

         Each of our production subsidiaries has implemented a system to
control its pollutant emissions and to oversee compliance with the PRC
environmental regulations. We have a central safety and environmental
compliance department to set our internal environmental requirements and
procedures, and to manage and supervise the environmental protection programs
at the various production facilities. Each production subsidiary has an
environmental compliance department which is responsible for supervising
environmental matters at the subsidiary and implementing our environmental
requirements and procedures. These departments report both to the management of
the subsidiary and to the central environmental compliance department.

         Our production facilities have their own facilities to treat waste
water, solid waste and waste gases on site. Waste water first goes through
preliminary treatment at our own waste water treatment facilities. Thereafter,
the water is sent to nearby waste water treatment centers operated either by us
or by Sinopec Group for further treatment. All solid waste materials generated
by our production facilities are buried at disposal sites or burned in furnaces
either operated by us or by Sinopec Group. Waste gases are generally treated
and burned in furnaces before dissipation and the ash is disposed in accordance
with our solid waste disposal procedures.

                                      27
<PAGE>

         Environmental regulations also require companies to file an
environmental impact report to the environmental bureau for approval before
undertaking any construction of a new production facility or any major
expansion or renovation of an existing production facility. Such an undertaking
will not be permitted to operate until the environmental bureau has performed
an inspection and is satisfied that environmentally sound equipment has been
installed for the facility.

         We believe our environmental protection systems and facilities are
adequate for us to comply with current applicable national and local
environmental protection regulations. The PRC government, however, may impose
stricter regulations which require additional expenditure on compliance with
environmental regulations.

         We paid pollutant discharge fees of approximately RMB 287 million in
2002, RMB 245 million in 2003 and RMB 248 million (US$30 million) in 2004.

         To date, we have not incurred any significant expenditure for
environmental remediation, are currently not involved in any environmental
remediation, and have not accrued any amounts for environmental remediation
relating to our operations. Under existing legislation, we believe that there
are no probable liabilities that will have a material adverse effect on our
financial position or operating results nor are we subject to any legally or
contractually mandated asset retirement obligations.

Insurance

         In respect of our refining, petrochemical production, and marketing
and sales operations, we currently maintain with Sinopec Group Company, under
the terms of its Safety Production Insurance Fund ("SPI Fund"), approximately
RMB 253.5 billion (US$30.6 billion) of coverage on our property and plants and
approximately RMB 23.5 billion (US$2.8 billion) of coverage on our inventory.
In 2004, we paid an insurance premium of approximately RMB 1,097 million
(US$132.5 million) to Sinopec Group Company for such coverage. Transportation
vehicles and products in transit are not covered by Sinopec Group Company and
we maintain insurance policies for those assets with insurance companies in the
PRC.

         The insurance coverage under SPI Fund applies to all enterprises
controlled by Sinopec Group Company under regulations published by the
Ministry of Finance. We believe that, in the event of a major accident, we will
be able to recover most of our losses from insurance proceeds paid under the
SPI Fund or by insurance companies.

         Pursuant to an approval of the Ministry of Finance, on January 29,
2002 Sinopec Group Company entered into an agreement with China People's
Insurance Company to purchase a property and casualty policy which would also
cover our assets. The policy provides for an annual maximum cumulative claim
amount of RMB 4.0 billion (US$0.5 billion) and a maximum of RMB 2.36 billion
(US$0.29 billion) per occurrence.

         Consistent with what we believe to be customary practice among PRC
enterprises, we do not currently carry any third party liability insurance to
cover claims in respect of personal injury, environmental damage arising from
accidents on our property or relating to our operations other than on our
transportation vehicles. We have not had a third party liability claim filed
against us during the past three years. We also do not carry business
interruption insurance, as such coverage is not customary in the PRC.

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

         A.   GENERAL

         The following discussion and analysis should be read in conjunction
with our audited financial statements and the accompanying notes. Part of the
financial information presented in this section is derived from our audited
financial statements that have been prepared in accordance with IFRS. IFRS vary
in certain significant respects from US GAAP. Information relating to the
nature and effect of such differences is presented in Note 34 to the
consolidated financial statements. Unless otherwise indicated, all financial
data, whether presented in accordance with IFRS on a consolidated basis or by
segment, are presented net of inter-segment transactions (i.e., inter-segment
and other intercompany transactions have been eliminated).

         Moreover, we acquired Sinopec National Star Petroleum Company from
Sinopec Group Company in 2001, Sinopec Maoming, Xi'an Petrochemical and Tahe
Petrochemical Factory from Sinopec Group Company in 2003 and Petrochemical and
Catalyst Assets from Sinopec Group Company in 2004. As we and these

                                      28
<PAGE>

companies are under the common control of Sinopec Group Company, our
acquisitions are considered as "combination of entities under common control"
which are accounted for in a manner similar to a pooling-of-interests.
Accordingly, the acquired assets and related liabilities have been accounted
for at historical cost and our consolidated financial statements for periods
prior to the combinations have been restated to include the financial position
and the results of operations of these acquired companies on a combined basis.

Critical Accounting Policies

         Our discussion and analysis of our financial condition and results of
operations contained elsewhere in this annual report are based on our
consolidated financial statements which have been prepared in accordance with
IFRS. Our reported financial condition and results of operations are sensitive
to accounting methods, assumptions and estimates that underlie the preparation
of our financial statements. We base our assumptions and estimates on
historical experience and on various other assumptions that we believe to be
reasonable and which form the basis for making judgments about matters that are
not readily apparent from other sources. On an on-going basis, our management
evaluates its estimates. Actual results may differ from those estimates as
facts, circumstances and conditions change.

         The selection of critical accounting policies, the judgments and other
uncertainties affecting application of those policies and the sensitivity of
reported results to changes in conditions and assumptions are factors to be
considered when reviewing our financial statements. Our principal accounting
policies are set forth in Note 2 to the consolidated financial statements. We
believe the following critical accounting policies involve the most significant
judgments and estimates used in the preparation of our financial statements.

         Oil and gas properties and reserves

         The accounting for our upstream oil and gas activities is subject to
special accounting rules that are unique to the oil and gas business. There are
two methods to account for oil and gas business activities, the successful
efforts method and the full cost method. We have elected to use the successful
efforts method. A description of our policies for oil and gas properties,
impairment, maintenance and repair activities is set forth in Note 2 to our
consolidated financial statements.

         The successful efforts method reflects the volatility that is inherent
in exploring for mineral resources in that costs of unsuccessful exploratory
efforts are charged to expense as they are incurred. These costs primarily
include dry hole costs, seismic costs and other exploratory costs. Under the
full cost method, these costs are capitalized and written-off (depreciation)
over time.

         Engineering estimates of our oil and gas reserves are inherently
imprecise and represent only approximate amounts because of the subjective
judgments involved in developing such information. There are authoritative
guidelines regarding the engineering criteria that have to be met before
estimated oil and gas reserves can be designated as "proved". Proved and proved
developed reserves estimates are updated at least annually and take into
account recent production and technical information about each field. In
addition, as prices and cost levels change from year to year, the estimate of
proved and proved developed reserves also changes. This change is considered a
change in estimate for accounting purposes and is reflected on a prospective
basis in related depreciation rates.

         Despite the inherent imprecision in these engineering estimates, these
estimates are used in determining depreciation expense and impairment expense,
and in disclosing the supplemental standardized measure of discounted future
net cash flows relating to proved oil and gas properties. Depreciation rates
are determined based on estimated proved developed reserve quantities (the
denominator) and capitalized costs of producing properties (the numerator).
Producing properties' capitalized costs are amortized based on the units of oil
or gas produced. Therefore, assuming all other variables are held constant, an
increase in estimated proved developed reserves decreases our depreciation,
depletion and amortization expense. Also, estimated reserves are often used to
calculate future cash flows from our oil and gas operations, which serve as an
indicator of fair value in determining whether a property is impaired or not.
The larger the estimated reserves, the less likely the property is impaired.
There have been no significant changes to the original reserve estimates during
any of the three years ended December 31, 2002, 2003 and 2004.

                                      29
<PAGE>

         Impairments

         If circumstances indicate that the net book value of an asset or
investment, including oil and gas properties, may not be recoverable, this
asset may be considered "impaired", and an impairment loss may be recognized in
accordance with IAS 36 "Impairment of Assets". The carrying amounts of
long-lived assets are reviewed periodically in order to assess whether the
recoverable amounts have declined below the carrying amounts. These assets are
tested for impairment whenever events or changes in circumstances indicate that
their recorded carrying amounts may not be recoverable. When such a decline has
occurred, the carrying amount is reduced to recoverable amount. The amount of
impairment loss is the difference between the carrying amount of the asset and
its recoverable amount. The recoverable amount is the greater of the net
selling price and the value in use. It is difficult to precisely estimate
selling price because quoted market prices for our assets are not readily
available. In determining the value in use, expected cash flows generated by
the asset are discounted to their present value, which requires significant
judgment relating to level of sale volume, selling price and amount of
operating costs. We use all readily available information in determining an
amount that is a reasonable approximation of recoverable reserves, including
estimates based on reasonable and supportable assumptions and projections of
reserve quantities.

         Impairment losses recognized for each of the three years ended
December 31, 2002, 2003 and 2004 in our statement of income and shareholders'
equity are summarized as follows:

<TABLE>
<CAPTION>

                                                                                 Years ended December 31,
                                                                            ---------------------------------
                                                                              2002        2003         2004
                                                                            -------      ------       -------
                                                                               RMB         RMB          RMB
                                                                             millions    millions    millions

<S>                                                                              <C>          <C>           <C>

    Impairment losses on long-lived assets recognized in statement of income
    Exploration and production............................................          --         310           98
    Refining..............................................................          --         114           14
    Marketing and distribution............................................          --          --        1,769
    Chemicals.............................................................          --         453        2,038
                                                                                 ---------   --------   --------
                                                                                    --         877        3,919
                                                                                 =========   =========  ========

    Impairment losses on revalued long-lived assets recognized in
    shareholders' equity
    Chemicals.............................................................          --          --          709
                                                                                 =========   =========  ========

</TABLE>

         Depreciation

         Property, plant and equipment are depreciated on a straight-line basis
over the estimated useful lives of the assets, after taking into account their
estimated residual value. We review the estimated useful lives of the assets
regularly in order to determine the amount of depreciation expense to be
recorded during any reporting period. The useful lives are based on our
historical experience with similar assets and taking into account anticipated
technological changes. The depreciation expense for future periods is adjusted
if there are significant changes from previous estimates. There have been no
significant changes to the estimated useful lives and residual value during
each of the three years ended December 31, 2002, 2003 and 2004.

         Revaluation

         As required by the relevant PRC rules and regulations, our property,
plant and equipment were revalued in connection with our reorganization, and
the property, plant and equipment of the companies that we acquired in 2001,
2003 and 2004 were also revalued in connection with these acquisitions. These
revaluations were carried out for each asset class by independent valuers on a
depreciated replacement cost basis. Subsequent to these revaluations, property,
plant and equipment are carried at the revalued amount, being the fair value as
at the date of the revaluation, less subsequent accumulated depreciation and
impairment losses. Revaluations are performed with sufficient regularity to
ensure that the carrying amount does not differ materially from that which
would be determined using fair value at the balance sheet date. We revalued our
property, plant and equipment based on a depreciated replacement cost basis in
accordance with our IFRS accounting policies as of December 31, 2004. The
results of subsequent revaluations may have an impact on our future results to
the extent the fair values of our property, plant and equipment change
significantly.

                                      30
<PAGE>

         Provision for Doubtful Debts

         We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make the required payments. We
base our estimates on the aging of our accounts receivable balance, customer
credit-worthiness, and historical write-off experience. If the financial
condition of our customers were to deteriorate, actual write-offs would be
higher than estimated.

<TABLE>
<CAPTION>

                                                                                Years ended December 31,
                                                                             -------------------------------
                                                                               2002        2003       2004
                                                                             ---------    -------    -------
                                                                               RMB          RMB       RMB
<S>                                                                           <C>         <C>        <C>
     At beginning of year................................................     2,814       3,017      3,350
     Provision for the year..............................................       574         939        935
     Written-off/back....................................................      (371)       (429)      (454)
     Less:  Amount distributed to Sinopec Group Company in connection
            with the acquisitions of assets..............................        --        (177)      (160)
                                                                             --------   ---------   --------
     At end of year......................................................     3,017      3,350        3,671
                                                                             ========   =========   ========
</TABLE>

         Recently pronounced International Financial Reporting Standards

         The International Accounting Standards Board (the "IASB") has issued a
number of new and revised International Financial Reporting Standards and
International Accounting Standards ("new IFRS") which are applicable to us for
accounting periods beginning on or after January 1, 2005.

         We have not early adopted these new IFRS in the financial statements
for the year ended December 31, 2004. We have completed a preliminary
assessment of the impact of these new IFRS to the extent that they are
applicable to us. A brief summary of the key features of these new IFRS and our
preliminary assessment result is as follows:

         IFRS 2

         In February 2004, the IASB issued IFRS 2, "Share-based Payment". IFRS
2 addresses the accounting for share-based payment transactions in financial
statements and requires an entity to measure the employee service received and
the liability incurred at the fair value of the instrument at the grant date,
and re-measure the fair value of the liability at each balance sheet date until
the final settlement of the liability. Currently, we do not expect the
application of IFRS 2 will have a material impact on our consolidated financial
position or consolidated results of operations.

         IFRS 3

         In March 2004, the IASB issued IFRS 3, "Business Combinations", and
replaced IAS 22 "Business Combinations" and related Interpretations. IFRS 3
requires all business combinations within its scope to be accounted for using
the purchase method. IFRS 3 also requires goodwill to be tested for impairment
annually and stated at cost less accumulated impairment losses, and negative
goodwill to be recognized immediately in the income statement on acquisition.
We cannot determine the potential effects that application of IFRS 3 will have
on our consolidated financial statements.

         IFRS 5

         In March 2004, the IASB issued IFRS 5, "Non-current Assets Held for
Sale and Discontinued Operations", and replaced IAS 35, "Discontinued
Operations". IFRS 5 requires that assets or disposal groups that are classified
as held for sale are carried at the lower of carrying amount and fair value
less costs to sell. IFRS 5 classifies an operation as discontinued at the date
the operation meets the criteria to be classified as held for sale or when the
entity has disposed of the operation. We cannot determine the potential effects
that application of IFRS 5 will have on our consolidated financial statements.

                                      31
<PAGE>

         IAS 1

         In December 2003, the IASB issued IAS 1 (Revised 2003), "Presentation
of Financial Statements", and replaced IAS 1 (Revised 1997). IAS 1 (Revised
2003) requires disclosure of an entity's judgments and assumptions on
application of its accounting policies. Additionally, IAS 1 (Revised 2003)
provides further guidance on classification of assets and liabilities.
Currently, we do not expect the application of IAS 1 (Revised 2003) will have a
material impact on our consolidated financial position or consolidated results
of operations.

         IAS 2

         In December 2003, the IASB issued IAS 2 (Revised 2003), "Inventories",
and replaced IAS 2 (Revised 1993) and a related Interpretation. IAS 2 (Revised
2003) eliminates the allowed alternative to measure inventories using the
last-in, first-out method. Additionally, IAS 2 (Revised 2003) requires finance
costs of inventories purchased with deferred settlement terms to be accounted
for separately over the period of financing. Currently, we do not expect the
application of IAS 2 (Revised 2003) will have a material impact on our
consolidated financial position or consolidated results of operations.

         IAS 8

         In December 2003, the IASB issued IAS 8 (Revised 2003), "Accounting
Policies, Changes in Accounting Estimates and Errors", and replaced IAS 8. IAS
8 (Revised 2003) requires retrospective application of voluntary changes in
accounting policies and retrospective restatement to correct prior period
errors and eliminates the allowed alternative to include such adjustment in the
current period income statement. IAS 8 (Revised 2003) requires, rather than
encourages, disclosure of an impending change in accounting policy when an
entity has yet to implement a new Standard or Interpretation that has been
issued but not yet come into effect. Currently, we do not expect the
application of IAS 8 (Revised 2003) will have a material impact on our
consolidated financial position or consolidated results of operations.

         IAS 16

         In December 2003, the IASB issued IAS 16 (Revised 2003), "Property,
Plant and Equipment", and replaced IAS 16 (Revised 1997) and related
Interpretations. IAS 16 (Revised 2003) requires an entity to determine cost,
useful life and depreciation charge separately for each significant part of an
item of property, plant and equipment, and derecognize the carrying amount of a
part of an item of property, plant and equipment if that part has been
replaced. IAS 16 (Revised 2003) also requires an entity to include the costs of
dismantlement, removal or restoration, the obligation for which an entity
incurs as a consequence of installing the item in the cost of that item of
property, plant and equipment. Currently, we do not expect the application of
IAS 16 (Revised 2003) will have a material impact on our consolidated financial
position or consolidated results of operations.

         IAS 17

         In December 2003, the IASB issued IAS 17 (Revised 2003), "Leases", and
replaced IAS 17 (Revised 1997). IAS 17 (Revised 2003) requires a lump sum lease
of land and building to be split into a lease of land and a lease of building,
in proportion to the relative fair values of the leasehold interests in the
land and building elements of the lease, and account for the lease of land and
lease of building separately by applying the classification criteria in the
standard. Currently, we do not expect the application of IAS 17 (Revised 2003)
will have a material impact on our consolidated financial position or
consolidated results of operations.

         IAS 21

         In December 2003, the IASB issued IAS 21 (Revised 2003), "The Effects
of Changes in Foreign Exchange Rates", and replaced IAS 21 (revised 1993) and
related Interpretations. IAS 21 (Revised 2003) requires each individual entity
included in a reporting entity to determine its functional currency and measure
its results and financial position in that currency and stipulates that an
entity previously classified as an integral foreign operation will have the
same functional currency as the reporting entity. Furthermore, IAS 21 (Revised
2003) disallows capitalizing exchange differences resulting from a severe
devaluation or depreciation of a currency against which there is no means of
hedging, and requires such differences be recognized in the income statement.
Currently, we do not expect the application of IAS 21 (Revised 2003) will have
a material impact on our consolidated financial position or consolidated
results of operations.

                                      32
<PAGE>

         IAS 24

         In December 2003, the IASB issued IAS 24 (Revised 2003), "Related
Party Disclosures", and replaced IAS 24 (reformatted 1994). IAS 24 (Revised
2003) expands the scope of related parties and removes the exemption of
profit-oriented state controlled entities from disclosing transactions with
other state-controlled entities. IAS 24 (Revised 2003) also requires additional
disclosures, including the compensation of key management personnel. Currently,
we do not expect the application of IAS 24 (Revised 2003) will have a material
impact on our consolidated financial position or consolidated results of
operations.

         IAS 27

         In December 2003, the IASB issued IAS 27 (Revised 2003), "Consolidated
and Separate Financial Statements", and replaced IAS 27 (Revised 2000) and a
related Interpretation. IAS 27 (Revised 2003) modifies the conditions for
exempting a parent from preparing consolidated financial statements and the
conditions for excluding subsidiaries from consolidation. IAS 27 (Revised 2003)
also requires minority interests to be presented within equity, separately from
the parent shareholders' equity. In addition, IAS 27 (Revised 2003) prohibits
the use of equity method of accounting for investments in subsidiaries, jointly
controlled entities and associates in a parenti-s separate financial
statements. Currently, we do not expect the application of IAS 27 (Revised
2003) will have a material impact on our consolidated financial position or
consolidated results of operations.

         IAS 28

         In December 2003, the IASB issued IAS 28 (Revised 2003), "Investments
in Associates", and replaced IAS 28 (Revised 2000) and related Interpretations.
IAS 28 (Revised 2003) clarifies its scope and the circumstances for which
investments in associates must be accounted for using the equity method.
Currently, we do not expect the application of IAS 28 (Revised 2003) will have
a material impact on our consolidated financial position or consolidated
results of operations.

         IAS 32

         In December 2003, the IASB issued IAS 32 (Revised 2003), "Financial
Instrument: Disclosure and Presentation", and replaced IAS 32 (Revised 2000)
and related Interpretations. IAS 32 (Revised 2003) clarifies the principle for
classifying a financial instrument, and introduces additional disclosures.
Currently, we do not expect the application of IAS 32 (Revised 2003) will have
a material impact on our consolidated financial position or consolidated
results of operations.

         IAS 33

         In December 2003, the IASB issued IAS 33 (Revised 2003), "Earnings Per
Share", and replaced IAS 33 (Revised 1997) and a related Interpretation. IAS 33
(Revised 2003) provides guidance and illustrative examples on selected complex
matters in respect of the calculation of earnings per share. Currently, we do
not expect the application of IAS 33 (Revised 2003) will have a material impact
on our consolidated financial position or consolidated results of operations.

         IAS 36

         In March 2004, the IASB issued IAS 36 (Revised 2004), "Impairment of
Assets", and replaced IAS 36 (Revised 1998). IAS 36 (Revised 2004) requires
that the recoverable amount of any intangible asset with an indefinite useful
life or not yet available for use, and goodwill acquired in a business
combination, be measured annually, rather than only when there is an indication
that the asset may be impaired as required by IAS 36 (Revised 1998). In
addition, IAS 36 (Revised 2004) clarifies the elements that should be reflected
in the calculation of an asset's value in use. Currently, we do not expect the
application of IAS 36 (Revised 2004) will have a material impact on our
consolidated financial position or consolidated results of operations.

         IAS 38

         In March 2004, the IASB issued IAS 38 (Revised 2004), "Intangible
Assets", and replaced IAS 38 (Revised 1998). IAS 38 (Revised 2004) revises the
definition of an intangible asset and provides further

                                      33
<PAGE>

guidance on recognition of an intangible asset. IAS 38 (Revised 2004) also
requires an entity to determine whether the useful life of an intangible asset
is definite or indefinite and removes the rebuttable presumption that the
useful life of an intangible asset does not exceed 20 years. Currently, we do
not expect the application of IAS 38 (Revised 2004) will have a material impact
on our consolidated financial position or consolidated results of operations.

         IAS 39

         In December 2003 and March 2004, the IASB issued IAS 39 (Revised
2003), "Financial Instruments: Recognition and Measurement", and Amendments to
IAS 39 (March 2004), "Fair Value Hedge Accounting for a Portfolio Hedge of
Interest Rate Risk", respectively. The revised IAS 39 amends its scope and
clarifies the conditions for de-recognition of a financial asset. Additionally,
the revised IAS 39 provides further guidance on determining fair value using
valuation techniques and evaluating impairment of financial assets. Currently,
we do not expect the application of the revised IAS 39 will have a material
impact on our consolidated financial position or consolidated results of
operations.

         IFRS 6

         In addition to the above, the IASB issued IFRS 6, "Exploration for and
Evaluation of Mineral Resources" in December 2004, which is effective for
accounting periods beginning on or after January 1, 2006. We have not early
adopted IFRS 6 in the financial statements for the year ended December 31,
2004. A brief summary of the key features of the IFRS 6 and our preliminary
assessment result is as follows:

         IFRS 6 allows the costs incurred in exploration for and evaluation of
mineral resources either to be recognized as exploration and evaluation assets
or continue to be accounted under the current accounting policies applied
before adopting IFRS 6, subject to certain limitations. We cannot determine the
potential effects that applications of IFRS 6 will have on our consolidated
financial statements.

Overview of Our Operations

         We are the largest integrated petroleum and petrochemical companies in
China and one of the largest in Asia in terms of operating revenues. We engage
in exploring for, developing and producing crude oil and natural gas, operating
refineries and petrochemical facilities and marketing crude oil, natural gas,
refined petroleum products and petrochemicals. We have reported our
consolidated financial results according to the following four principal
business segments and the corporate and others segment.

     o    Exploration and Production Segment, which consists of our activities
          related to exploring for and developing, producing and selling crude
          oil and natural gas;

     o    Refining Segment, which consists of purchasing crude oil from our
          exploration and production segment and from third parties, processing
          of crude oil into refined products, selling refined products
          principally to our marketing and distribution segment;

     o    Marketing and Distribution Segment, which consists of purchasing
          refined petroleum products from the refining segment and third
          parties, and marketing, selling and distributing refined products by
          wholesale to large customers and independent distributors and retail
          through our retail network;

     o    Chemicals Segment, which consists of purchasing chemical feedstock
          principally from the refining segment and producing, marketing,
          selling and distributing chemical products; and

     o    Corporate and Others Segment, which consists principally of trading
          activities of the import and export subsidiaries and our research and
          development activities.

         B.   CONSOLIDATED RESULTS OF OPERATIONS

         The following table sets forth certain income and expense items from
our consolidated statements of income for the periods indicated.

                                      34
<PAGE>
<TABLE>
<CAPTION>

                                                                              Year Ended December 31,
                                                               -----------------------------------------------------
                                                                 2002           2003           2004          2004
                                                               ---------       --------      --------     ----------
                                                                  RMB            RMB           RMB            US$
                                                                                   (in billions)

<S>                                                              <C>            <C>            <C>            <C>
Operating revenues
   Sales of goods......................................          333.9          429.9          597.2          72.2
   Other operating revenues............................           16.2           19.1           22.6           2.7
                                                               ---------      ---------      --------      ----------
     Total operating revenues..........................          350.1          449.0          619.8          74.9
Operating expenses
     Purchased crude oil, products and
       operating supplies and expenses.................         (239.1)        (313.2)        (443.6)        (53.6)
     Selling, general and administrative expenses......          (22.4)         (27.2)         (31.8)         (3.8)
     Depreciation, depletion and amortization..........          (26.5)         (28.0)         (32.3)         (3.9)
     Exploration expenses, including dry holes.........           (4.4)          (6.1)          (6.4)         (0.8)
     Personnel expenses................................          (15.0)         (17.0)         (18.6)         (2.3)
     Employee reduction expenses.......................           (0.2)          (1.0)          (0.9)         (0.1)
     Taxes other than income tax.......................          (12.0)         (13.6)         (16.3)         (2.0)
     Other operating expenses, net.....................           (1.2)          (4.0)          (6.7)         (0.8)
                                                               ---------      ---------      --------      ----------
     Total operating expenses..........................         (320.8)        (410.1)        (556.7)        (67.3)
                                                               ---------      ---------      --------      ----------
Operating income.......................................           29.3           38.9           63.1           7.6
                                                               ---------      ---------      --------      ----------
Net finance costs......................................           (5.0)          (4.5)          (4.4)         (0.5)
Gain from issuance of shares by a subsidiary...........             -             0.1             -             -
Other income and gains.................................            0.6            0.5            0.9           0.1
                                                               ---------      ---------      --------      ----------
Income before income tax and minority interests........           24.9           35.0           59.6           7.2
Income tax.............................................           (7.5)         (10.6)         (17.8)         (2.1)
                                                               ---------      ---------      --------      ----------
Income before minority interests.......................           17.4           24.4           41.8           5.1
Minority interests.....................................           (1.1)          (2.0)          (5.8)         (0.7)
                                                               ---------      ---------      --------      ----------
Net income.............................................           16.3           22.4           36.0           4.4
                                                               =========      =========      ========      ==========

</TABLE>

         Year Ended December 31, 2004 Compared with Year Ended December 31, 2003

         In 2004, our sales of goods and other operating income were RMB 597.2
billion (US$72.2 billion) and RMB 22.6 billion (US$2.7 billion), respectively,
representing an increase of 38.9% and 18.3%, respectively, from those in the
previous year. These results are largely attributable to a number of factors.
First, the international crude oil prices continued to be volatile and remained
at a high level, the chemical industry was on the up trend cycle, and the
domestic economy consistently maintained fast growth, all of which resulted in
strong demand for chemical products and high prices of chemical products,
which, in turn, provided favorable conditions for us to maximize our returns.
Second, by taking the advantage of the favorable opportunities, we proactively
developed the market, increased the sales of refined oil products, maintained
steady growth in oil and gas production and increased the throughput of crude
oil and production of chemical products. In addition, we continued to strive
for better operating results through strengthening internal management,
furthering corporate reforms and improving asset structure.

         Operating Revenues

         Overview

         In 2004, our sales of goods and other operating revenues were RMB
619.8 billion (US$74.9 billion), representing an increase of 38.0% compared
with 2003. Our sales of goods was RMB 597.2 billion (US$72.2 billion),
representing an increase of 38.9% compared with 2003. In 2004, we captured the
opportunity of the increased prices of crude oil and petrochemical products in
the international market, expanded the sales volume of our major petrochemical
products and optimized marketing structure. Our other operating revenues
increased to RMB 22.6 billion (US$2.7 billion) in 2004, representing an
increase of 18.3% compared with 2003. Our other operating revenues increased
to RMB 22.6 billion (US$2.7 billion) in 2004, representing an increase of
18.3% compared with 2003. Such other operating revenues primarily consist of
revenues generated from our sale of raw and auxiliary materials to Sinopec
Group as well as third parties.

         The following table sets forth external sales revenues and percentages
of sales of goods and other operating revenues by product category, as well as
percentage changes from 2003 to 2004.

                                      35
<PAGE>
<TABLE>
<CAPTION>

                                                                                                    As a Percentage of
                                              Year Ended December 31,               Rate of           Sales of Goods
                                        -------------------------------------     Change from           and Other
                                        2003          2004            2004        2003 to 2004     Operating Revenues
                                        ------     ---------         --------     ------------     ------------------
                                        (RMB)        (RMB)            (US$)           (%)                (%)
                                                  (in billion)

<S>                                      <C>            <C>             <C>             <C>                <C>
External Sales Revenues
Crude oil and natural gas......          14.9           16.0            1.9             6.9                2.6
Refined petroleum products.....         289.7          406.2           49.1            40.2               65.5
Chemical products..............          92.0          126.0           15.2            37.0               20.3

</TABLE>

The following table sets forth the average external sales prices and sales
volumes by selected products, as well as the respective percentage changes
from 2003 to 2004.

<TABLE>
<CAPTION>

                                                                      Rate of
                                                                       Change                             Rate of
                                   Average External Sales Price         from         Sales Volume         Change
                                 --------------------------------     2003 to      ------------------      from
                                  2003         2004         2004         2004       2003        2004    2003 to 2004
                                  ----         ----         ----         ----       ----        ----    ------------
                                  (RMB)        (RMB)        (US$)        (%)                                (%)

<S>                             <C>           <C>           <C>           <C>        <C>           <C>      <C>
Crude Oil....................   1,493(1)      1,872(1)      226.2(1)      25.4       7.22(2)       6.01(2)  (16.7)
Natural Gas..................     591(3)        609(3)       73.6(3)       3.0       3.41(4)       3.78(4)   10.9
Gasoline ....................   3,298(1)      3,765(1)      454.9(1)      14.2      23.36(2)      27.35(2)   17.1
Diesel ......................   2,794(1)      3,221(1)      389.2(1)      15.3      47.29(2)      60.42(2)   27.8
Kerosene ....................   2,361(1)      2,923(1)      353.2(1)      23.8       4.81(2)       5.68(2)   18.1
Selected Chemical Products
   Synthetic Resin ..........   6,017(1)      7,986(1)      964.9(1)      32.7       5.10(2)       5.40(2)    6.0
   Synthetic Fiber...........   9,300(1)     10,818(1)    1,307.1(1)      16.3       1.72(2)       1.74(2)    1.2
   Synthetic Rubber..........   8,513(1)     10,238(1)    1,237.0(1)      20.3       0.55(2)       0.56(2)    0.2
   Synthetic Fiber Monomer
     and Polymer.............   5,791(1)      8,022(1)      969.3(1)      38.5       2.62(2)       2.70(2)    3.1

------------------
(1)  per tonne
(2)  million tonnes
(3)  per thousand cubic meters
(4)  billion cubic meters
</TABLE>

         Sales of crude oil and natural gas

         Most of crude oil and a small portion of natural gas produced by us
were internally used by our refining and chemical production. The remaining
was sold to the refineries controlled by our controlling shareholder, Sinopec
Group and third party customers.

         In 2004, sales revenues from crude oil and natural gas amounted to
RMB 16.0 billion (US$1.9 billion), or 2.6% of our sales of goods and other
operating revenues, representing an increase of 6.9% compared with RMB 14.9
billion in 2003. Such increase was primarily attributable to the increase in
price of crude oil and expansion of natural gas business. The external sales
price of crude oil increased to RMB 1,872 (US$226.2) per tonne from RMB 1,493
per tonne in 2003, representing an increase of 25.4% from 2003. The effect of
increased price was partially offset by the decrease in the quantity of
external sales from 7.22 million tonnes in 2003 to 6.01 million tonnes in
2004, representing a decrease of 16.7%. The external sales price of natural
gas rose from RMB 591 per thousand cubic meters in 2003 to RMB 609 (US$73.6)
per thousand cubic meters in 2004, representing an increase of 3.0%, and the
external sales volume increased from 3.4 billion cubic meters in 2003 to 3.8
billion cubic meters in 2004, representing an increase by 10.5%.

                                      36
<PAGE>

         Sales of refined petroleum products

         Both the refining and the marketing and distribution segments make
sales of refined petroleum products, which consist primarily of gasoline,
diesel, kerosene (including jet fuel) and other refined products to third
parties.

         In 2004, the external sales revenue of petroleum products recorded by
these two segments were RMB 406.2 billion (US$49.1 billion), accounting for
65.5% of our sales of goods and other operating revenues, representing an
increase of 40.2% from RMB 289.7 billion in 2003. Such increase was primarily
attributable to the increase in prices and sales volume of gasoline, diesel
and kerosene and also to the Company's proactive efforts in increasing sales
volume, optimizing marketing structure and expanding the market of other
petroleum products. The sales revenue of gasoline, diesel and kerosene was RMB
314.2 billion (US$38.0 billion), comprising 77.4% of the total sales revenue
of petroleum products, representing an increase of 42.5% from RMB 220.5
billion in 2003. The increase of sales revenue of gasoline, diesel and
kerosene was due to the rise of prices and our active efforts in increasing
the sales volume of these products. In 2004, the average external sales price
of gasoline was RMB 3,765 (US$454.9) per tonne, representing an increase of
14.2% compared with 2003, the average external sales price of diesel was RMB
3,221 (US$389.2) per tonne, representing an increase of 15.3% compared with
that in 2003 and the average sales price of kerosene was RMB 2,923 (US$353.2)
per tonne, representing an increase of 23.8% compared with that in 2003. The
sales volume of gasoline was 27.4 million tonnes, representing an increase of
17.1% compared with that in 2003, and the sales volume of diesel was 60.4
million tonnes, representing an increase of 27.8% compared with that in 2003.
The combined sales volume of gasoline, diesel and kerosene was 23.8% higher
than that of 2003.

         Sales of chemical products

         In 2004, our external sales revenue of chemical products was RMB
126.0 billion (US$15.2 billion), accounting for 20.3% of our sales of goods
and other operating revenues, or representing increase of 37.0% compared with
that of RMB 92.0 billion in 2003. The increase was mainly due to the
significant increase in both chemical products prices and sales volumes of
major chemical products. In 2004, the external sales volumes of synthetic
resin, synthetic fiber, synthetic rubber, synthetic fiber monomer and polymer
were respectively 5.4 million tonnes, 1.7 million tonnes, 556,000 tonnes, 2.7
million tonnes, representing increases of 6.0%, 1.2%, 0.2% and 3.1%
respectively compared with 2003. The external sales prices of such products
were, respectively, RMB 7,986 (US$964.9) per tonne, RMB 10,818 (US$1,307.1)
per tonne, RMB 10,238 (US$1,237.0) per tonne and RMB 8,022 (US$969.3) per
tonne, representing increases of 32.7%, 16.3%, 20.3% and 38.5% respectively,
compared with 2003.

         Operating expenses

         In 2004, our operating expenses were RMB 556.7 billion (US$67.3
billion), representing an increase of 35.7% compared with 2003. The operating
expenses mainly consisted of the following:

         Purchased crude oil, products, and operating supplies and expenses

         Our purchased crude oil, products and operating supplies and expenses
were RMB 443.6 billion (US$53.6 billion), accounting for 79.7% of the operating
expenses, representing an increase of 41.6% compared with 2003. Among
others,

      o   Purchased crude oil expenses were RMB 232.6 billion (US$28.1
          billion), accounting for 41.8% of the total operating expenses,
          representing an increase of 41.5% compared with 2003. To meet the
          increasing demands in the market associated with the rapid growth of
          the Chinese economy, we increased our throughput of crude oil
          purchased externally. In 2004, our throughput of crude oil purchased
          externally was 101 million tonnes (excluding amounts processed for
          third parties), representing an increase of 13.6% compared with 2003.
          Our average cost for crude oil purchased from third parties in 2004
          was RMB 2,312 (US$279.3) per tonne, representing an increase of 24.6%
          compared with 2003.

     o    In 2004, our other purchase expenses were RMB 211.0 billion (US$25.5
          billion), accounting for 37.9% of the total operating expenses,
          representing an increase of 41.7% compared with 2003.

                                      37
<PAGE>

         This increase was mainly due to the increased costs of refined oil
         products and chemical feedstock purchased externally.

         Selling, general and administrative expenses

         In 2004, our selling, general and administrative expenses were RMB
31.8 billion (US$3.8 billion), representing an increase of 16.9% compared with
2003. The increase was largely due to:

     o    Sales volume of refined oil products and sales through retail and
          direct distribution increased. As a result, the selling expenses,
          such as transportation costs, increased by RMB 1.9 billion (US$0.2
          billion) from 2003;

     o    An increase in repairing and maintenance expenses by RMB 1.1 billion
          (US$0.1 billion) compared with 2003 due to the additions of property,
          plant and equipment and the increase in maintenance activities
          related to petrol stations;

     o    Operating lease rentals increased by RMB 0.7 billion (US$0.1 billion)
          from 2003. The increase was mainly due to the increase in rental of
          operating facilities such as petrol stations from third parties and
          rental of land and buildings from related parties; and

     o    Our advertising expenses increased by RMB 0.7 billion (US$0.1
          billion) as a result of our enhanced efforts to promote our image.

         Depreciation, depletion and amortization

         In 2004, our depreciation, depletion and amortization amounted to RMB
32.3 billion (US$3.9 billion), representing an increase of 15.7% over 2003.
This increase was mainly due to the addition of property, plant and equipment
as a result of capital expenditure.

         Exploration expenses

         In 2004, our exploration expenses were RMB 6.4 billion (US$0.8
billion), representing an increase of 4.3% from 2003. The increase was
principally due to our further increase of investment in the exploration
activities, especially in the major new blocks in the western and southern
parts of China.

         Personnel expenses

         In 2004, our personnel expenses were RMB 18.6 billion (US$2.3
billion), representing an increase of 9.8% over 2003. The increase was largely
due to our introduction of a market rate based compensation system reform. As a
result, wage, salary and welfare expenses increased by RMB 1.3 billion (US$0.1
billion).

         Employee reduction expenses

         In 2004, as part of our voluntary staff reduction plan, and in
connection with the acquisition of petrochemical and catalyst assets from and
the disposal of downhole operation assets to Sinopec Group Company, we incurred
approximately RMB 0.9 billion (US$0.1 billion) as employee reduction expenses
for approximately 24,000 employees, down by RMB 0.1 billion compared with that
in 2003.

         Taxes other than income tax

         In 2004, our taxes other than income tax were RMB 16.3 billion (US$2.0
billion), representing an increase of 20.2% over 2003. The increase was largely
due to the increase of consumption tax and associated city construction taxes
and education surcharges as a result of the increased sales volume of gasoline
and diesel.

         Other operating expenses, net

         In 2004, our other operating expenses (net) were RMB 6.7 billion
(US$0.8 billion), representing an increase of 67.7% from 2003. The increase
was largely due to the following reason: In order to allocate our internal
resources more efficiently, we revised the production plans in 2004, and
accordingly made a provision for impairment loss of RMB 3.9 billion (US$0.5
billion) on certain less efficient chemical facilities, petrol stations and

                                      38
<PAGE>

depots on the difference between the estimated recoverable value and the net
book value of these assets, representing an increase of RMB 3.0 billion
(US$0.4 billion) compared with 2003. Meanwhile, disposals of assets decreased
in 2004.

         Operating income

         In 2004, our operating income was RMB 63.1 billion (US$7.6 billion),
representing an increase of 62.2% from 2003.

         Net finance costs

         In 2004, our net finance costs were RMB 4.4 billion (US$0.5 billion),
representing a decrease of 2.1% from 2003. The decrease was primarily due to a
decrease in foreign exchange losses in 2004.

         Income before income tax and minority interests

         In 2004, our income before income tax and minority interests was RMB
59.6 billion (US$7.2 billion), representing an increase of 70.1% from 2003.

         Income tax

         In 2004, our income tax was RMB 17.8 billion (US$2.1 billion),
representing an increase of 67.4% over 2003. The increase was primarily due to
the increase in operating income.

         Minority interests

         In 2004, our minority interests were RMB 5.8 billion (US$0.7 billion),
representing an increase of 192.7% over 2003. The increase was primarily due to
the increase in the profits of our subsidiaries increased as compared with
2003.

         Net income

         In 2004, our net income was RMB 36.0 billion (US$4.4 billion),
representing an increase of 60.6% compared with 2003.

         Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

         In 2003, our sales of goods and operating income were RMB 429.9
billion (US$51.9 billion) and RMB 19.1 billion (US$2.3 billion) respectively,
representing an increase of 28.8% and 17.9%, respectively, from those in the
previous year. These changes are largely attributable to a number of factors.
First, we closely monitored the changes in market demands, and quickly
responded to such changes through adjustments of our operating plan. Second,
to take advantage of the favorable opportunity of higher prices of crude oil
and chemical products in the global market and the rapid growth of Chinese
economy, we managed to overcome the negative impact caused by SARS and further
expanded our target market. In addition, we continued to strive for better
operating results through more strengthened management, further corporate
reforms, better asset structure and more efficient operation.

         Operating Revenues

         Overview

         In 2003, our sales of goods and other operating revenues were RMB
449.0 billion (US$54.2 billion), representing an increase of 28.2% compared
with 2002. Our sales of goods was RMB 429.9 billion (US$51.9 billion),
representing an increase of 28.8% compared with 2002. The increase was
primarily due to increase of the prices of crude oil, petroleum products and
chemical products in the global market in 2003. In addition, to seize the
market opportunity, we increased our refining throughput and increased the
sales volume of our refined products, and increased our sales volume of main
petrochemical products significantly. Our other operating revenues increased
to RMB 19.1 billion (US$2.3 billion) in 2003, representing an increase of
17.9% compared with 2002. Such other operating revenues primarily consist of
revenues generated from our sale of raw and auxiliary materials to Sinopec
Group and its subsidiaries as well as third parties.

                                      39
<PAGE>

         The following table sets forth external sales revenues and percentages
of sales of goods and other operating revenues by product category, as well as
percentage changes from 2002 to 2003.

<TABLE>
<CAPTION>

                                                                                                   As a Percentage of
                                              Year Ended December 31,                Rate of         Sales of Goods
                                         -------------------------------------     Change from         and Other
                                           2002          2003           2003       2002 to 2003     Operating Revenues
                                         -------        ------         -------     ------------     ------------------
                                          (RMB)         (RMB)           (US$)           (%)               (%)
                                                   (in billion)

<S>                                        <C>           <C>             <C>           <C>                 <C>
External Sales Revenues
Crude oil and natural gas......            10.9          14.9            1.8           36.7                3.3
Refined petroleum products.....           226.0         289.7           35.0           28.2               64.5
Chemical products..............            72.2          92.0           11.1           27.4               20.5

</TABLE>

         The following table sets forth the average external sales prices and
sales volumes by selected products, as well as the respective percentage
changes from 2002 to 2003.

<TABLE>
<CAPTION>


                                                                      Rate of
                                     Average External Sales Price      Change         Sales Volume         Rate of
                                  ---------------------------------  from 2002      --------------------  Change from
                                  2002         2003          2003     to 2003         2002        2003    2002 to 2003
                                  -----       ------        -------  ----------     ---------  ---------  ------------
                                 (RMB)        (RMB)          (US$)      (%)                                   (%)

<S>                             <C>          <C>            <C>        <C>           <C>        <C>           <C>
Crude Oil....................   1,189(1)     1,493(1)       180.4(1)   25.6          6.35(2)    7.22(2)       13.7
Natural Gas..................     574(3)       591(3)        71.4(3)    3.0          3.2(4)     3.4(4)         6.3
Gasoline ....................   2,806(1)     3,298(1)       398.5(1)   17.5         22.54(2)   23.36(2)        3.6
Diesel ......................   2,408(1)     2,794(1)       337.6(1)   16.0         44.04(2)   47.29(2)        7.4
Selected Chemical Products
   Synthetic Resin ..........   5,163(1)     6,017(1)       727.0(1)   16.5          4.38(2)    5.10(2)       16.4
   Synthetic Fiber...........   9,022(1)     9,300(1)     1,123.7(1)    3.1          1.38(2)    1.72(2)       24.6
   Synthetic Rubber..........   6,468(1)     8,513(1)     1,028.6(1)   31.6          0.51(2)    0.55(2)        7.8
   Synthetic Fiber Monomer
     and Polymer.............   5,338(1)     5,791(1)       699.7(1)    8.5          2.04(2)    2.62(2)       28.4

--------------
(1)  per tonne
(2)  million tonnes
(3)  per thousand cubic meter
(4)  billion cubic meters

</TABLE>

         Sales of crude oil and natural gas

         Most of crude oil and a small portion of natural gas produced by us
were internally used by our refining and chemical production. The remaining was
sold to the refineries controlled by our controlling shareholder, Sinopec Group
Company and third party customers.

         In 2003, sales revenues from crude oil and natural gas amounted to
RMB 14.9 billion (US$1.8 billion), or 3.3% of our sales of goods and other
operating revenues, representing an increase of 36.7% compared with RMB 10.9
billion in 2002. Such increase was primarily attributable to the increase in
price and sales volume of crude oil. The external sales price of crude oil
increased to RMB 1,493 (US$180.4) per tonne from RMB 1,189 per tonne in 2002,
representing an increase of 25.6% from 2002. The quantity of external sales
increased from 6.35 million tonnes in 2002 to 7.22 million tonnes in 2003,
representing an increase of 13.7%. The external sales price of natural gas
rose from RMB 574 per thousand cubic meters in 2002, to RMB 591 (US$71.4) per
thousand cubic meters in 2003, and the external sales volume increased from
3.2 billion cubic meters in 2002 to 3.4 billion cubic meters in 2003.

                                      40
<PAGE>

         Sales of refined petroleum products

         Both the Refining and the marketing and distribution segments make
sales of refined petroleum products, which consist primarily of gasoline,
diesel, kerosene (including jet fuel) and other refined products to third
parties.

         In 2003, the external sales revenue of petroleum products recorded by
these two segments were RMB 289.7 billion (US$35.0 billion), accounting for
64.5% of our sales of goods and other operating revenues, representing an
increase of 28.2% from RMB 226.0 billion in 2002. The sales revenue of
gasoline and diesel was RMB 209.1 billion (US$25.3 billion), comprising 72.2%
of the total sales revenue of petroleum products, representing an increase of
23.5% from RMB 169.3 billion in 2002. Among others, the sales revenue of
gasoline in 2003 was RMB 77 billion (US$9.3 billion), representing an increase
of 21.6% compared with 2002. The sales revenue of diesel was RMB 132.1 billion
(US$16.0 billion), representing an increase of 24.6% compared with 2002. The
increase of sales revenue of gasoline and diesel was due to the rise of
gasoline and diesel prices and our active efforts in increasing the sales
volume of its products. In 2003, the average external sales price of gasoline
was RMB 3,298 (US$398.5) per tonne, representing an increase of 17.5% compared
with 2002, and the average external sales price of diesel was RMB 2,794
(US$337.6) per tonne, representing an increase of 16% compared with that in
2002. The sales volume of gasoline was 23.36 million tonnes, representing an
increase of 3.6% compared with that in 2002, and the sales volume of diesel
was 47.29 million tonnes, representing an increase of 7.4% compared with that
in 2002. The combined sales volume of gasoline and diesel was 6.1% higher than
that of 2002.

         Sales of chemical products

         In 2003, our external sales revenue of chemical products was RMB 92.0
billion (US$11.1 billion), accounting for 20.5% of our sales of goods and
other operating revenues, representing an increase of 27.4% compared with that
of RMB 72.2 billion in 2002. The increase was mainly due to the significant
increase in both chemical products prices and sales volumes of major chemical
products, as a result of the strong domestic demand for chemical products. The
strong domestic demand corresponded to the gradual recovery of the global
chemical market. In order to increase production volume for our chemical
products, we revamped certain of our ethylene and other downstream facilities,
which increased our production capacity of certain chemical products. In 2003,
the external sales volumes of synthetic resin, synthetic fiber, synthetic
rubber, synthetic fiber monomer and polymer were respectively 5.10 million
tonnes, 1.72 million tonnes, 550,000 tonnes, 2.62 million tonnes, representing
increases of 16.4%, 24.6%, 7.8% and 28.4% respectively compared with 2002. The
external sales prices of such products were, respectively, RMB 6,017
(US$727.0) per tonne, RMB 9,300 (US$1,123.7) per tonne, RMB 8,513 (US$1,028.6)
per tonne and RMB 5,791 (US$699.7) per tonne, representing increases of 16.5%,
3.1%, 31.6% and 8.5% respectively, compared with 2002.

         Operating expenses

         In 2003, our operating expenses were RMB 410.1 billion (US$49.5
billion), representing an increase of 27.8% compared with 2002. The increase in
operating expenses was primarily attributable to the increase in purchased
crude oil, products and operating supplies and expenses and selling, general
and administrative expenses.

         Purchased crude oil, products, and operating supplies and expenses

         Our purchased crude oil, products and operating supplies and expenses
were RMB 313.2 billion (US$37.8 billion), accounting for 76% of the operating
expenses, an increase of RMB 74.1 billion (US$9.0 billion) compared with
2002, representing an increase of 31.0%. Among others,

     o    Purchased crude oil expenses were RMB 164.3 billion (US$19.9
          billion), accounting for 40.1% of the total operating expenses, an
          increase of RMB 45 billion (US$5.4 billion) or 37.7% compared with
          2002. To meet the increasing demands in the market associated with
          the rapid growth of the Chinese economy, we increased our crude oil
          throughput. In 2003, our crude oil throughput was 116.66 million
          tonnes (excluding amounts processed for third parties), representing
          an increase of 11.23 million tonnes, or 10.7%, compared with 2002. Of
          our crude oil throughput, our exploration and production segment
          supplied 28.08 million tonnes, representing a decrease of 1.46
          million tonnes, or 4.9%, compared with 2002. We processed 88.58
          million tonnes of crude oil purchased from third parties,
          representing an increase of 12.69 million tonnes, or 16.7%, compared
          with 2002. Since March 2003, crude oil price in the global market has
          gradually increased. Our average cost for crude oil purchased from
          third parties in 2003 was RMB 1,855

                                      41
<PAGE>

          (US$224.1) per tonne, representing an increase of RMB 283 (US$34.2)
          per tonne, or 18%, compared with 2002.

     o    In 2003, our other purchase expenses were RMB 148.9 billion (US$18.0
          billion), accounting for 36.3% of the total operating expenses,
          representing an increase of RMB 29.1 billion (US$3.5 billion), or
          24.3%, compared with 2002. This increase was mainly due to the
          increased costs of oil products and chemical feedstock caused by the
          increase in crude oil price.

         Selling, general and administrative expenses

         In 2003, our selling, general and administrative expenses were RMB
27.2 billion (US$3.3 billion), representing an increase of RMB 4.8 billion
(US$0.6 billion), or 21.4%, compared with 2002. The increase was largely due
to:

     o    In 2003, provision for bad debts increased by RMB 1.15 billion
          (US$0.1 billion) from 2002.

     o    In connection with the upgrade of production facilities and improved
          technologies, we disposed of certain low efficiency production
          equipment in 2003 causing an increase in the expense related to
          disposal of relevant spare parts by RMB 500 million (US$60.4 million)
          compared with 2002.

     o    Expenses in research and development increased by RMB 0.60 billion
          (US$72.0 million) from 2002.

     o    Operating lease rentals increased by RMB 0.39 billion (US$47.1
          million) from 2002, mainly because we leased certain additional
          petrol stations in order to further expand our distribution channels
          of oil products.

     o    After the expansion and revamping of some of our chemical facilities,
          sales volume of chemical products increased. In addition, proportion
          of retail over the total sales volume of refined oil products, and
          total sales volume of refined oil products increased. Accordingly,
          the selling expenses, such as transportation costs, increased by RMB
          0.69 billion (US$83.3 million) from 2002.

         Depreciation, depletion and amortization

         In 2003, our depreciation, depletion and amortization amounted to RMB
28.0 billion (US$3.4 billion), representing an increase of 5.7% over 2002. This
increase was mainly due to the addition of property, plant and equipment as a
result of capital expenditure.

         Exploration expenses

         In 2003, our exploration expenses were RMB 6.1 billion (US$0.7
billion), representing an increase of 38.6% from 2002. The increase was
principally due to our further increase of investment in the exploration
activities, especially in the major new blocks in the western and southern
parts of China.

         Personnel expenses

         In 2003, our personnel expenses were RMB 17.0 billion (US$2.1
billion), representing an increase of 13.3% over 2002. The increase was largely
due to our introduction of a market rate based compensation system reform. As a
result, wage, salary and welfare expenses increased by RMB 1.8 billion (US$0.2
billion).

         Employee reduction expenses

         As part of our voluntary staff reduction plan, we incurred
approximately RMB 1 billion (US$0.1 billion) as employee reduction expenses for
approximately 21,000 employees who voluntarily terminated their employment with
us in 2003.

                                      42
<PAGE>

         Taxes other than income tax

         In 2003, our taxes other than income tax were RMB 13.6 billion (US$1.6
billion), representing an increase of 13.3% over 2002. The increase was largely
due to the increase of consumption tax and surcharges as a result of the
increased sales volume of gasoline and diesel.

         Other operating expenses, net

         In 2003, our other operating expenses (net) were RMB 4.0 billion
(US$0.5 billion), representing an increase of RMB 2.8 billion (US$0.3 billion)
from 2002. The increase was largely due to a number of factors. Among others,

     o    To facilitate a long-term development strategy, we further improved
          our asset structure and our overall asset quality. In 2003, we
          incurred a net loss of RMB 2.2 billion (US$0.3 billion), or an
          increase of RMB 1.43 billion (US$0.2 billion) over those in 2002, on
          disposal of certain low efficiency assets, which included RMB 90
          million (US$10.9 million) from the exploration and production
          segment, RMB 0.74 billion (US$89.4 million) from the refining
          segment, RMB 0.4 billion (US$44.7 million) from the marketing and
          distribution segment, RMB 1.0 billion (US$0.1 billion) from the
          chemicals segment, and RMB 10 million (US$1.2 million) from corporate
          and others segment.

     o    In order to allocate our internal resources more efficiently, we
          revised the production plans for certain less efficient facilities in
          2003, and accordingly made a provision for impairment of long-lived
          assets of RMB 0.88 billion (US$106.3 million), representing the
          difference between the expected recoverable value and the net book
          value of these assets.

         Operating income

         In 2003, our operating income was RMB 38.9 billion (US$4.7 billion),
representing an increase of 33% from 2002.

         Net finance costs

         In 2003, our net finance costs were RMB 4.5 billion (US$0.5 billion),
representing a decrease of RMB 0.5 billion (US$58.6 million), or 9.8%, from
2002. The decrease was primarily due to our further reduction of the aggregate
amount of our short-term loan and the adjustment of our financing structure to
include, among others, certain US-dollar denominated loans. The interest
expense was RMB 4.4 billion (US$0.5 billion) in 2003, representing a decrease
of RMB 0.6 billion (US$68.5 million) from 2002.

         Income before income tax and minority interests

         In 2003, our income before income tax and minority interests was RMB
35.0 billion (US$4.2 billion), representing an increase of 40.6% from 2002.

         Income tax

         In 2003, our income tax was RMB 10.6 billion (US$1.3 billion),
representing an increase of 42.1% over 2002.

         Minority interests

         In 2003, our minority interests were RMB 2.0 billion (US$0.2 billion),
representing an increase of 74.7% over 2002.

         Net income

         In 2003, our net income was RMB 22.4 billion (US$2.7 billion),
representing an increase of 37.6% compared with 2002.

                                      43
<PAGE>

         C.   DISCUSSIONS ON RESULTS OF SEGMENT OPERATIONS

         We divide our operations into four principal business segments,
namely, exploration and production segment, refining segment, marketing and
distribution segment, and chemicals segment, and a corporate and others
segment.

         Unless otherwise specified, inter-segment transactions have not been
eliminated from the financial data discussed in this section. In addition, the
operating revenue data for each segment discussed in this section include, in
addition to the sales of goods, "other operating revenues" for such segment.

         The following table shows the operating revenues by each segment, the
contribution of external sales and inter-segment sales as a percentage of
operating revenues before elimination of inter-segment sales, and the
contribution of external sales as a percentage of consolidated operating
revenues (i.e. after elimination of inter-segment sales) for the periods
indicated.

<TABLE>
<CAPTION>

                                                                               As a Percentage of
                                                                                  Consolidated
                                                                                    Operating         As a Percentage of
                                                                                 Revenues Before         Consolidated
                                                                                   Elimination        Operating Revenues
                                                                                of Inter-segment     After Elimination of
                                          Years Ended December 31,                    Sales          Inter-segment Sales
                                    --------------------------------------     ------------------   ---------------------
                                     2002      2003       2004      2004        2003       2004       2003        2004
                                    ------    ------     ------     -----      -------     ------   --------     --------
                                    RMB         RMB        RMB       US$         (%)        (%)       (%)         (%)
                                                  (in billions)

<S>                                 <C>        <C>       <C>         <C>          <C>        <C>        <C>        <C>

Exploration and Production
   External sales(1)........        18.2       23.0      25.3        3.1          3.0        2.5        5.1        4.1
   Inter-segment sales......        39.4       47.3      60.1        7.3          6.3        5.9
                                  ------     -------   -------     ------       ------     ------
    Total operating revenue.        57.6       70.3      85.3       10.3          9.3        8.4
                                  ======     =======   =======     ======       ======     =======
Refining
   External sales(1)........        44.7       56.0      68.6        8.3          7.4        6.7       12.5       11.1
   Inter-segment sales......       168.6      217.7     289.7       35.0         28.9       28.5
                                  ------     -------   -------     ------       ------     ------
    Total operating revenue.       213.3      273.7     358.3       43.3         36.3       35.2
                                  ======     =======   =======     ======       ======     =======
Marketing and distribution
   External sales(1)........       184.7      238.8     343.6       41.5         31.7       33.8       53.2       55.4
   Inter-segment sales......         2.3        2.6       2.8        0.3          0.3        0.3
                                  ------     -------   -------     ------       ------     ------
    Total operating revenue.       187.0      241.4     346.4       41.9         32.0       34.1
                                  ======     =======   =======     ======       ======     =======
Chemicals
   External sales(1)........        76.5       96.4     132.2       16.0         12.8       13.0       21.5       21.3
   Inter-segment sales......         7.9        7.4      12.5        1.5          1.0        1.2
                                  ------     -------   -------     ------       ------     ------
    Total operating revenue.        84.4      103.8     144.7       17.5         13.8       14.2
                                  ======     =======   =======     ======       ======     =======
Corporate and others
   External sales(1)........        26.0       34.8      50.2        6.0          4.6        4.9        7.7        8.1
   Inter-segment sales......        20.4       30.4      32.0        3.9          4.0        3.2
                                  ------     -------   -------     ------       ------     ------
    Total operating revenue.        46.4       65.2      82.2        9.9          8.6        8.1
                                  ======     =======   =======     ======       ======     =======
    Total operating revenue
       before inter-segment
       eliminations.........       588.7      754.4   1,016.9      122.9        100.0      100.0
                                                                                ======     =======
   Elimination of inter-segment
        sales...............      (238.6)    (305.4)   (397.1)     (48.0)
                                 --------   ---------  -------     ------
   Consolidated operating
        revenues............       350.1      449.0     619.8       74.9                              100.0      100.0
                                 ========   =========  =======     =======                            =====      ======

-----------------

(1)  includes other operating revenues. See Note 31 to the consolidated financial statements for other operating
     revenues of each of our operating segments.

</TABLE>

         The following table shows the operating revenues, operating expenses
and operating income by each segment before elimination of the inter-segment
transactions for the periods indicated, and the percentage change from 2003 to
2004.

                                      44
<PAGE>
<TABLE>
<CAPTION>

                                                                                                       Rate of
                                                             Years Ended December 31,                  Change
                                                 ------------------------------------------------     from 2003
                                                  2002           2003          2004        2004        to 2004
                                                 -------        -------       -------     -------    ----------
                                                  RMB            RMB           RMB          US$         (%)
                                                                         (in billions)

<S>                                                <C>           <C>            <C>         <C>        <C>

Exploration and Production
   Total operating revenues..............          57.6          70.3           85.3        10.3        21.4
   Total operating expenses..............         (42.8)        (51.1)         (59.7)       (7.2)       16.8
                                                 --------      --------       --------    --------    -------
     Total operating income..............          14.8          19.2           25.6         3.1        33.7
                                                 ========      ========       ========    ========    ========
Refining
   Total operating revenues..............         213.3         273.7          358.3        43.3        30.9
   Total operating expenses..............        (207.3)       (267.7)        (352.4)      (42.6)       31.6
                                                 --------      --------       --------    --------    -------
     Total operating income..............           6.0           6.0            5.9         0.7        (2.1)
                                                 ========      ========       ========    ========    ========
Marketing and distribution
   Total operating revenues..............         187.0         241.4          346.4        41.9        43.5
   Total operating expenses..............        (178.6)       (229.5)        (331.7)      (40.1)       44.6
                                                 --------      --------       --------    --------    -------
     Total operating income..............           8.4          11.9           14.7         1.8        23.2
                                                 ========      ========       ========    ========    ========
Chemicals
   Total operating revenues..............          84.4         103.8          144.7        17.5        39.3
   Total operating expenses..............         (83.3)       (100.3)        (126.0)      (15.3)       25.6
                                                 --------      --------       --------    --------    -------
     Total operating income..............           1.1           3.5           18.7         2.2       428.4
                                                 ========      ========       ========    ========    ========
Corporate and others
   Total operating revenues..............          46.4          65.2           82.2         9.9        26.1
   Total operating expenses..............         (47.4)        (67.0)         (84.1)      (10.1)       25.5
                                                 --------      --------       --------    --------    -------
     Total operating loss................          (1.0)         (1.8)          (1.9)       (0.2)        4.8
                                                 ========      ========       ========    ========    ========
</TABLE>

         Exploration and Production Segment

         The business activities of the exploration and production segment
consist of exploration, development, production, and sale of crude oil and
natural gas.

         Year Ended December 31, 2004 compared with Year Ended December 31, 2003

         Operating revenues from the exploration and production segment in 2004
were RMB 85.3 billion (US$10.3 billion), representing an increase of 21.4% from
RMB 70.3 billion in 2003. The increase in operating revenues was primarily due
to an increase in the sales volume and sales price of crude oil compared with
those in 2003.

         In 2004, average realized price of crude oil by this segment was RMB
1,956 (US$236.3) per tonne, representing an increase of 20.7% over 2003.
Average realized price of natural gas was RMB 616 (US$74.4) per thousand cubic
meters, representing an increase of 3.3% over 2003.

         Sales volume of crude oil was 36.3 million tonnes, representing an
increase of 1.4% compared with 2003. Sales volume of natural gas was 3.9
billion cubic meters, representing an increase of 11.6% over that in 2003.

         In 2004, the segment's operating expenses were RMB 59.7 billion
(US$7.2 billion), an increase of 16.8%, compared with 2003. The increase was
primarily because:

     o    The depreciation, depletion and amortization of the segment increased
          by RMB 2.6 billion (US$0.3 billion) compared with 2003. This change
          was caused by the additions of oil and gas properties as a result of
          an increase in capital expenditure incurred in this segment.

     o    The rise of fuel cost as a result of the increase in oil and gas
          production and fuel prices, resulting in an increase of the operating
          expenses by approximately RMB 1 billion (US$0.1 billion) compared
          with 2003.

     o    Other operating expenses including expenses related to the sales of
          materials were up by RMB 1.3 billion (US$0.2 billion) compared with
          2003.

                                      45
<PAGE>

     o    Exploration expenses (including dry holes) were up by RMB 0.3 billion
          (US$31.8 million) compared with 2003.

     o    Due to the increase of sales revenues of crude oil, the natural
          resources compensation fee increased accordingly. Land and building
          rental increased due to the increase of leased land and buildings. In
          addition, safety insurance fund also increased. The total of these
          items was up by RMB 0.5 billion (US$0.1 billion) compared with 2003.

         In 2004, operating income of the exploration and production segment
was approximately RMB 25.6 billion (US$3.1 billion), which was 33.7% higher
than that in 2003.

         Year Ended December 31, 2003 compared with Year Ended December 31, 2002

         Operating revenues from the exploration and production segment in 2003
were RMB 70.3 billion (US$8.5 billion), representing an increase of 22% from
RMB 57.6 billion in 2002. The increase in operating revenues was primarily due
to an increase in the average realized prices of crude oil. In addition, the
increase was also partially due to increase in the average realized prices and
sales volume of natural gas.

         In 2003, average realized price of crude oil by this segment was RMB
1,620 (US$195.7) per tonne, representing an increase of 22.9% over 2002.
Average realized price of natural gas was RMB 596 (US$72.0) per thousand cubic
meters, representing an increase of 4.2% over 2002.

         Sales volume of crude oil was 35.8 million tonnes, representing an
increase of 0.6% compared with 2002. Sales volume of natural gas was 3.5
billion cubic meters, representing an increase of 6.1% over that in 2002.

         In 2003, the segment's operating expenses were RMB 51.1 billion
(US$6.2 billion), or an increase of RMB 8.3 billion (US$1.0 billion), or 19.4%,
compared with 2002. The increase was primarily because:

     o    In 2003, the segment continued to implement its strategy featuring
          "expansion of resources", and increased investment in exploration
          activities in a number of new blocks in western and southern parts of
          China. As a result, the exploration expenses (including the costs of
          dry holes) increased by RMB 1.7 billion (US$0.2 billion) compared
          with 2002.

     o    Due to the increase of downhole operation activities and rise of fuel
          and other costs as a result of the increase in crude oil price, the
          lifting cost of crude oil and natural gas increased by RMB 1.04
          billion (US$0.1 billion) compared with 2002.

     o    Other expenses including supply of materials increased by RMB 0.8
          billion (US$0.1 billion) compared with 2002.

     o    In 2003, as a result of the employee compensation system reform,
          wages, salaries and welfare expenses increased by approximately RMB
          0.7 billion (US$0.1 billion) compared with 2002.

     o    In 2003, depreciation, depletion and amortization were RMB 9.4
          billion (US$1.1 billion), representing an increase of RMB 0.4 billion
          (US$48.3 million) compared with 2002, due to the addition of fixed
          assets resulted from the segment's capital investments.

     o    Provision for impairment losses of assets were RMB 310 million
          (US$37.5 million), representing an increase of RMB 310 million
          (US$37.5 million) compared with 2002.

     o    Due to the increase of sales revenues the compensation fee for
          mineral resources increased. In addition, land lease rentals
          increased due to the increase in leased land area. The sum of these
          two items increased by RMB 220 million (US$26.6 million) compared
          with 2002.

     o    Disposal of spare parts increased by approximately RMB 100 million
          (US$12.1 million) compared with 2002.

                                      46
<PAGE>

         In 2003, operating income of the exploration and production segment
was approximately RMB 19.2 billion (US$2.3 billion), which was 29.7% higher
than in 2002.

         Refining Segment

         Our refining segment consists of our operations related to purchasing
crude oil from our exploration and production segment and from third parties,
processing of crude oil into refined petroleum products, selling gasoline,
diesel and kerosene including jet fuel to our marketing and distribution
segment, and selling other refined petroleum products to domestic and overseas
customers.

         Year Ended December 31, 2004 compared with Year Ended December 31, 2003

         In 2004, the refining segment's operating revenues were RMB 358.3
billion (US$43.3 billion), representing an increase of 30.9% over 2003. The
increase was mainly due to the increase in the sales prices and sales volumes
of various major refined petroleum products.

         The table below sets forth sales revenue and the percentage of total
operating revenue for the segment by product category for 2003 and 2004, and as
well as the percentage changes in sales revenue from 2003 to 2004.

<TABLE>
<CAPTION>

                                                                                              As a Percentage of
                                                                                              Refining Segment's
                                           Years Ended December 31,         Rate of Change   Total Operating Revenue
                                      -----------------------------------       from         ------------------------
                                       2003          2004         2004       2003 to 2004      2003        2004
                                       ----          ----         ----       ------------     ------     -------
                                       (RMB)        (RMB)         (US$)           (%)           (%)        (%)
                                                (in billions)

<S>                                     <C>          <C>            <C>           <C>            <C>        <C>

Refining Segments, operating
   revenues
   Gasoline.......................      55.8         63.8           7.7           14.4           20.4       17.8
   Diesel ........................      99.7        145.3          17.6           45.7           36.5       40.5
   Light chemical feedstock ......      49.9         62.1           7.5           24.5           18.2       17.3
   Other refined petroleum
      products....................      63.8         81.9           9.9           28.3           23.3       22.8
   Other operating revenues              4.5          5.2           0.6           15.6            1.6        1.6
                                       ------      ------        ------          -----         ------     -------
Total.............................     273.7        358.3          43.3           30.9          100.0      100.0
                                      =======      ======        ======          =====         ======     =======

</TABLE>

         In 2004, the sales revenues of gasoline realized by the segment was
RMB 63.8 billion (US$7.7 billion), accounting for 17.8% (which was 2.6
percentage points lower than that of 2003) of this segment's operating
revenues, representing an increase of 14.4% from 2003.

         In 2004, the sales revenues of diesel realized by the segment was RMB
145.3 billion (US$17.6 billion), accounting for 40.5% (which was 4.0 percentage
points higher than that of 2003) of this segment's operating revenues,
representing an increase of 45.7% from 2003.

         In 2004, the sales revenues of chemical feedstock realized by the
segment was RMB 62.1 billion (US$7.5 billion), accounting for 17.3% (which was
0.9 percentage points lower than that in 2003) of this segment's operating
revenues, representing an increase of 24.5% from 2003.

         In 2004, the sales revenues of refined petroleum products other than
gasoline, diesel and chemical feedstock were RMB 81.9 billion (US$9.9 billion),
accounting for 22.8% (which was 0.5 percentage point lower than that of 2003)
of this segment's operating revenues, representing an increase of 28.3% from
2003.

         The table below sets forth sales volume and average realized prices by
product for 2003 and 2004, and as well as the percentage changes in sales
volume and average realized prices for the periods shown.

                                      47
<PAGE>
<TABLE>
<CAPTION>

                                                                                       Average
                                               Sales volume     Rate of change     realized prices     Rate of change
                                               ------------          from          ---------------          from
                                            2003       2004     2003 to 2004       2003       2004      2003 to 2004
                                            ----       ----     ------------       ----       ----      ------------
                                            (million tonnes)          (%)           (RMB per tonne)          (%)
<S>                                          <C>       <C>            <C>          <C>        <C>            <C>
Gasoline................................     21.25     21.42          0.8          2,624      2,977          13.5
Diesel..................................     41.46     50.27         21.2          2,404      2,890          20.2
Light chemical feedstock ...............     21.91     23.17          5.7          2,277      2,682          17.8
Other refined petroleum products........     29.64     31.71          7.0          2,155      2,583          19.9
</TABLE>

         In 2004, the operating expenses of the segment were RMB 352.3 billion
(US$42.6 billion), representing an increase of 31.6% from 2003. This increase
was largely due to the rise of increase of processing volume and price crude
oil.

         In 2004, the average crude oil cost was RMB 2,261 (US$273.2) per
tonne, representing an increase of 24.0% from 2003. Refining throughput was
128.8 million tonnes (excluding amounts processed for third parties),
representing an increase of 10.4% over 2003. In 2004, the total crude oil costs
were RMB 291.3 billion (US$35.2 billion), accounting for 82.7% of the segment's
operating expenses, representing an increase of 36.9% over 2003. In addition,
the proportion accounted for by the total crude oil costs in the refining
segment's operating expenses in 2004 increased by 3.2 percentage points
compared with 2003.

         In 2004, with oil prices remaining at a high level, we strived to
minimize purchase cost of crude oil and transportation cost and increase the
revenue of refined oil products, and expanded the sales market of refined
petroleum products other than gasoline, diesel and kerosene. However, the
increase of refined oil price was less than that of crude oil.

         In 2004, operating profit of the refining segment was RMB 5.9 billion
(US$0.7 billion), similar to that in 2003.

         Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

         In 2003, the refining segment's operating revenues were RMB 273.7
billion (US$33.1 billion), or an increase of RMB 60 billion (US$7.2 billion),
or 28.3%, over 2002. The increase was mainly due to the increase in the selling
prices and sales volumes of various major refined petroleum products.

         The table below sets forth sales revenue and the percentage of total
operating revenue for the segment by product category for 2002 and 2003, and
as well as the percentage changes in sales revenue from 2002 to 2003. Other
refined petroleum products mainly consist of kerosene (including jet fuel),
liquid petroleum gas, fuel oil, lubricant and asphalt.

<TABLE>
<CAPTION>

                                                                                               As a Percentage of
                                                                                               Refining Segment's
                                              Years Ended December 31,     Rate of Change     Total Operating Revenue
                                       ---------------------------------        from          -----------------------
                                       2002          2003        2003       2002 to 2003        2002       2003
                                       ----          ----        ----       ------------        ----       ----
                                       (RMB)        (RMB)        (US$)           (%)            (%)        (%)
                                               (in billions)

<S>                                        <C>           <C>         <C>          <C>            <C>       <C>
Refining Segments, operating
   revenues
   Gasoline.......................         44.1          55.8        6.8          26.5           20.7      20.4
   Diesel ........................         79.8          99.7       12.0          24.9           37.4      36.5
   Light chemical feedstock ......         38.9          49.9        6.0          28.3           18.2      18.2
   Other refined petroleum
      products....................         47.4          63.8        7.7          34.6           22.2      23.3
   Other operating revenues.......          3.1           4.5        0.6          45.2            1.5       1.6
                                          -----         -----      -----         -----          -----     -----
Total.............................        213.3         273.7       33.1          28.1          100.0     100.0
                                          =====         =====      =====         =====          =====     =====
</TABLE>

         In 2003, the sales revenues of gasoline realized by the segment was
RMB 55.8 billion (US$6.8 billion), accounting for 20.4% (which was 0.3% lower
than that of 2002) of this segment's operating revenues, representing an
increase of 26.5% from 2002.

                                      48
<PAGE>

         In 2003, the sales revenues of diesel realized by the segment was RMB
99.7 billion (US$12.0 billion), accounting for 36.5% (which was 0.9% lower than
that of 2002) of this segment's operating revenues, representing an increase of
24.9% from 2002.

         In 2003, the sales revenues of chemical feedstock realized by the
segment was RMB 49.9 billion (US$6.0 billion), accounting for 18.2% (which was
similar to that in 2002) of this segment's operating revenues, representing an
increase of 28.3% from 2002.

         In 2003, the sales revenues of refined petroleum products other than
gasoline, diesel and chemical feedstock were RMB 63.8 billion (US$7.7 billion),
accounting for 23.3% (which was 1.1% higher that of 2002) of this segment's
operating revenues, representing an increase of 34.6% from 2002. The growth of
the sales revenues of these products was faster than that of gasoline and
diesel, mainly because the segment actively reinforced its efforts in marketing
these refined petroleum products, in response to the changes in the market
situation. To seize the opportunities, we further optimized our product-mix,
and produced a larger quantity of those refined petroleum products with higher
added values.

         The table below sets forth sales volume and average realized prices
by product for 2002 and 2003, and as well as the percentage changes in sales
volume and average realized prices for the periods shown. Other refined
petroleum products mainly consist of kerosene (including jet fuel), liquid
petroleum gas, jet fuel, fuel oil, lubricant and asphalt.

<TABLE>
<CAPTION>

                                                                 Rate of change       Average       Rate of change
                                                Sales volume         from         realized prices       from
                                                2002      2003   2002 to 2003      2002      2003   2002 to 2003
                                                ----      ----   ------------      ----      ----   ------------
                                                (million tonnes)      (%)         (RMB per tonne)       (%)

<S>                                            <C>       <C>           <C>         <C>       <C>        <C>
Gasoline................................       19.34     21.25         9.9         2,281     2,624      15.0
Diesel..................................       37.53     41.46        10.5         2,127     2,404      13.0
Light chemical feedstock ...............       20.09     21.91         9.1         1,934     2,277      17.7
Other refined petroleum products........       25.99     29.64        14.0         1,843     2,157      17.0

</TABLE>

         In 2003, the operating expenses of the segment were RMB 267.7 billion
(US$32.4 billion), representing an increase of 29.1% from 2002. This increase
was largely due to the rise of crude oil price, as well as our efforts in
increasing the throughput of crude oil.

         In 2003, the average crude oil cost was RMB 1,824 (US$220.4) per
tonne, representing an increase of RMB 295 (US$35.6) per tonne, or 19.3%, from
2002. Crude oil throughput was 116.66 million tonnes (excluding amounts
processed for third parties), representing and increase of 11.23 million
tonnes, or 10.65%, over 2002. In 2003, the total crude oil costs were RMB 212.8
billion (US$25.7 billion), accounting for 79.5% of the segment's operating
expenses, representing an increase of RMB 51.6 billion (US$6.2 billion), or
32%, over 2002. In addition, the proportion accounted for by the total crude
oil costs in the refining segment's operating expenses in 2003 increased by
1.9% compared with 2002.

         In 2003, operating profit of the refining segment was RMB 6 billion
(US$724.9 million), similar to that in 2002.

         Marketing and Distribution Segment

         Our marketing and distribution segment consists of our operations
related to purchasing petroleum products from the refining segment and third
parties, and wholesale selling of petroleum products to domestic customers,
directly selling and distributing petroleum products through the retail network
owned by this segment and provision of related services.

         Year Ended December 31, 2004 Compared with Year Ended December 31, 2003

         In 2004, the segment's operating revenues of our marketing and
distribution segment were RMB 346.4 billion (US$41.9 billion), representing an
increase of 43.5% over 2003. The increase was primarily due to the increase in
the total sales volume and sales prices of petroleum products and the
sustained optimization of marketing structure, which further increased the
retail and distribution ratios at gasoline and diesel.

         In 2004, the operating revenues from retail of gasoline and diesel
were RMB 299.9 billion (US$36.2 billion), accounting for 86.6% of the operating
revenues of this segment. The percentage of retail and the

                                      49
<PAGE>

distribution sales in the total sales volume of the segment increased further.
The percentage of retail sales of gasoline and diesel in the segment's sales
volume increased from 48.9% in 2003 to 54.6% in 2004, up by 5.7 percentage
points. The percentage of distribution sales of gasoline and diesel in the
segment's sales volume increased from 13.3% in 2003 to 20.3% in 2004, up by 7
percentage points. The percentage of the wholesale sales of gasoline and diesel
in the segment's sales volume decreased from 37.8% in 2003 to 25.1% in 2004.
The percentage of wholesale sales in the total sales volume of gasoline and
diesel decreased from 37.8% in 2003 to 25.1 in 2004, down by 12.7 percentage
points.

         The following table shows the sales volumes, average realized prices
and respective percentages of change of four product categories in 2003 and
2004, including the break-down information of different sales channels for
gasoline and diesel.

<TABLE>
<CAPTION>

                                                                                        Average
                                                                  Rate of Change   Realized Prices    Rate of Change
                                                Sales Volume           from        ----------------       from
                                                2003     2004      2003 to 2004     2003       2004    2003 to 2004
                                                ----     ----      ------------     ----       ----    ------------
                                               (million tonnes)         (%)         (RMB per tonne)          (%)

<S>                                             <C>       <C>          <C>            <C>      <C>          <C>
Gasoline....................................    23.53     27.51        16.9           3,295    3,762        14.2
   Retail sale..............................    14.68     18.42        25.5           3,450    3,911        13.4
   Distribution.............................     1.62      2.89        78.3           3,152    3,536        12.2
   Wholesale................................     7.24      6.20       (14.3)          3,011    3,426        13.8
Diesel .....................................    47.92     61.10        27.5           2,789    3,215        15.3
   Retail sale..............................    20.29     30.00        47.8           2,954    3,351        13.4
   Distribution.............................     7.88     15.12        91.9           2,772    3,211        15.8
   Wholesale................................    19.75     15.98       (19.1)          2,626    2,963        12.8
Kerosene including jet fuel.................     4.57      5.62        23.0           2,350    2,923        24.4
Fuel Oil  ..................................     6.37      9.69        52.0           1,670    1,793         7.4

</TABLE>

         In 2004, this segment's operating expenses were RMB 331.7 billion
(US$40.1 billion), representing an increase of 44.6% compared with 2003. Among
others, purchasing costs of gasoline and diesel were RMB 260.9 billion (US$31.5
billion), constituting 78.7% of the segment's operating expenses. Average
purchased prices of gasoline and diesel increased by 12.1% and 18.8%,
respectively, compared with 2003, to RMB 3,019 (US$364.8) per tonne and RMB
2,910 (US$351.6) per tonne respectively. The purchasing volume of gasoline and
diesel increased by 16.9% and 27.5% from 2003, to 27.51 million tonnes and
61.10 million tonnes respectively.

         In 2004, the segment's operating income was RMB 14.7 billion (US$1.8
billion), or an increase of 23.2% compared with 2003.

         Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

         In 2003, the segment's operating revenues of our marketing and
distribution segment were RMB 241.4 billion (US$29.1 billion), or an increase
of 29.1% over 2002. The increase was primarily due to the increase in the total
sales volume and sales prices of petroleum products, and in particular the
higher percentage accounted for by the retail volume of gasoline, diesel and
high-grade gasoline in the total sales volume. In 2003, total sales volume of
petroleum products was 83.86 million tonnes, representing an increase of 10.25
million tonnes, or 13.9%.

         The percentage of retail and the distribution sales in the total sales
volume of the segment increased further. The percentage of retail sales of
gasoline and diesel in the segment's operating revenue increased from 43.7% in
2002 to 45.8% in 2003. The percentage of distribution sales of gasoline and
diesel in the segment's operating revenue increased from 8.5% in 2002 to 11.2%
in 2003. The percentage of the wholesale sales of gasoline and diesel in the
segment's operating revenue decreased from 31.9% in 2002 to 25.1% in 2003.

         In 2003, the percentage of retail sales of gasoline and diesel in the
total sales volume of gasoline and diesel increased from 44.8% in 2002 to
48.9% in 2003, up by 3.4 percentage points. The percentage of distribution
sales of gasoline and diesel in the total sales volume increased from 9.9% in
2002 to 13.3% in 2003, up by 4.1 percentage points. The percentage of
wholesale sales of the total sales volume of gasoline and diesel decreased
from 38.1% in 2002 to 30.6% in 2003, down by 7.5 percentage points. The
increase in the retail percentage in the total sales volume was due to a
number of factors including, among others, our continued efforts to build

                                      50
<PAGE>

additional retail sales outlets, to further optimize the locations of our
existing petrol stations, to further improve the service quality, and to
further increase the throughput per petrol station.

         The percentage of high-grade gasoline in the total sales volume of
gasoline further increased, from 27.1% in 2002 to 35.5% in 2003, up by 8.4
percentage points.

         The sales revenues of four major product categories, namely gasoline,
diesel, kerosene (including jet fuel) and fuel oil, of the segment were RMB
232.6 billion (US$28.1 billion), constituting 96.4% of the segment's operating
revenue, representing an increase of 29.1% from 2002.

         The following table shows the sales volumes, average realized prices,
respective percentages of change of four product categories in 2002 and 2003,
including the break-down information of different sales channels for gasoline
and diesel.

<TABLE>
<CAPTION>

                                                                                        Average
                                                                  Rate of Change    Realized Prices    Rate of Change
                                                Sales Volume           from         ----------------       from
                                                  2002     2003    2002 to 2003      2002       2003    2002 to 2003
                                                  ----     ----    ------------      ----       ----    ------------
                                                (million tonnes)         (%)         (RMB per tonne)          (%)

<S>                                              <C>      <C>          <C>            <C>      <C>           <C>

Gasoline....................................     21.36    23.53        10.2           2,857    3,295         15.3
   Retail sale..............................     12.34    14.68        19.0           3,062    3,450         12.7
   Direct sale to customers.................      0.72     0.79         9.7           2,313    2,682         16.0
   Distribution.............................      1.04     1.62        55.8           2,693    3,152         17.0
   Wholesale................................      7.26     6.44       (11.3)          2,585    3,051         18.0
Diesel .....................................     44.50    47.92         7.7           2,405    2,789         16.0
   Retail sale..............................     17.16    20.29        18.2           2,562    2,954         15.3
   Direct sale to customers.................      4.01     4.34         8.2           2,219    2,511         13.1
   Distribution.............................      5.48     7.88        43.8           2,398    2,772         15.6
   Wholesale................................     17.85    15.41       (13.7)          2,297    2,626         14.3
Kerosene including jet fuel.................      4.34     4.57         5.3           2,112    2,350         11.3
Fuel Oil  ..................................      2.11     6.37       201.9           1,427    1,670         17.0

</TABLE>

         In 2003, this segment's operating expenses were RMB 229.5 billion
(US$27.7 billion), representing an increase of 28.4% compared with 2002. Among
others, purchasing costs of gasoline and diesel were RMB 180.8 billion (US$21.8
billion), constituting 78.8% of the segment's operating expenses. Average
purchased prices of gasoline and diesel increased by 14.3% and 13.7%,
respectively, compared with 2002, to RMB 2,693 (US$325.4) per tonne and RMB
2,450 (US$296.0) per tonne respectively. The purchasing volume of gasoline and
diesel increased by 10.2% and 7.7% from 2002, to 23.53 million tonnes and 47.92
million tonnes respectively.

         In 2003, the segment's operating income was RMB 11.9 billion (US$1.4
billion), or an increase of 41.7% compared with 2002. This increase was due to
a number of factors, including its continued efforts to focus on market
demands, to increase the percentage of retail and distribution sales volumes in
the total sales volume, to further optimize the deployment of resources, and to
increase the total sales volume of petroleum products. As a result, the segment
managed to achieve relatively good operating results over the full year.

         Chemicals Segment

         Our chemicals segment consists of operations related to purchasing
chemical feedstock from our refining segment, producing, marketing and
distribution of petrochemical products and inorganic chemical products.

         Year Ended December 31, 2004 Compared with Year Ended December 31, 2003

         In 2004, the chemicals segment's operating revenue were RMB 144.7
billion (US$17.5 billion), representing an increase of 39.3% compared with
2003. This increase was mainly due to an increase in sales volumes and sales
prices of major chemical products.

         The sales revenues of the six major product categories of this
segment, namely, basic organic chemicals, synthetic resin, synthetic rubber,
synthetic fiber, synthetic fiber monomer and polymer, and chemical fertilizer,
were approximately RMB 124.7 billion (US$15.1 billion), accounting for 86.2% of
the segment's operating revenues, representing an increase of 33.7% compared
with 2003.

                                      51
<PAGE>

         The following table sets forth the sales volume, average realized
prices and respective percentages changes of these six major categories of
chemical products of the segment in 2003 and 2004.

<TABLE>
<CAPTION>

                                                                                  Average
                                         Sales Volumes      Rate of Change    Realized Prices    Rate of Change
                                         2003      2004    from 2003 to 2004   2003     2004    from 2003 to 2004
                                         ----      ----    -----------------   ----     ----    -----------------
                                        (million tonnes)          (%)          (RMB per tonne)         (%)

<S>                                      <C>       <C>            <C>         <C>        <C>           <C>

Basic organic chemicals...............   7.21      7.38           2.4         3,377      4,292         27.1
Synthetic resins......................   5.10      5.40           6.0         6,017      7,986         32.7
Synthetic rubber......................   0.55      0.56           1.4         8,513     10,247         20.4
Synthetic fiber.......................   1.72      1.74           1.2         9,300     10,818         16.3
Synthetic fiber monomers
   and polymers.......................   2.62      2.70           3.1         5,791      8,022         38.5
Chemical fertilizer...................   2.03      2.66          30.7         1,165      1,355         16.3

</TABLE>

         In 2004, the chemicals segment's operating expenses were RMB 126.0
billion (US$15.3 billion), representing an increase of 25.6% compared with that
of 2003. This change was primarily caused by the price increase of various raw
materials, the increased consumption of various raw materials and auxiliary
materials with the increase in the production of this segment, as well as the
increased variable expenses and fixed costs. More specifically, the increase
was due to the following reasons:

     o    Affected by the increase in the consumption of raw materials and
          auxiliary materials and the increase in their unit prices, the
          purchasing costs for raw materials, operating supplies and other
          related expenses increased by approximately RMB 21.9 billion (US$2.6
          billion) compared with 2003.

     o    Materials sales and other business expenses were up by RMB 1.8
          billion (US$0.2 billion) compared with 2003.

     o    Provision for impairment losses on low efficient facilities for
          fertilizer and caprolactam was RMB 2.0 billion (US$0.2 billion),
          representing an increase of RMB 1.6 billion (US$0.19 billion).

         In 2004, the segment's operating income was RMB 18.7 billion (US$2.2
billion), representing an increase of approximately RMB 15.2 billion (US$1.8
billion) from 2003. The percentage of operating profit of the chemicals segment
in our total operating profit increased from 9% in 2003 to 29.6% in 2004,
representing an increase of 20.6 percentage pints.

         Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

         In 2003, the chemicals segment's operating revenue were RMB 103.8
billion (US$12.5 billion), representing an increase of 23.0% compared with
2002. This increase was mainly due to significant increases in sales volumes
and sales prices of all major categories of chemical products except chemical
fertilizers, as a result of the strong domestic demand for chemical products.
The strong domestic demand corresponded to the gradual recovery of the global
chemical market. In order to increase production volume for our chemical
products, we revamped certain of our ethylene and other downstream facilities,
which increased our production capacity of certain chemical products.

         The sales revenues of the six major product categories of this
segment, namely basic organic chemicals, synthetic resin, synthetic rubber,
synthetic fiber, synthetic fiber monomer and polymer, and chemical fertilizer,
were approximately RMB 93.3 billion (US$11.3 billion), accounting for 89.9% of
the segment's operating revenues, representing an increase of 25.4% compared
with 2002.

         The following table sets forth the sales volume, average realized
prices and respective percentages changes of these six major categories of
chemical products of the segment in 2002 and 2003.

<TABLE>
<CAPTION>

                                           Sales Volumes                           Average
                                          --------------     Rate of Change    Realized Prices   Rate of Change
                                           2002     2003   from 2002 to 2003   2002     2003    from 2002 to 2003
                                           ----     ----   -----------------   ----     ----    -----------------
                                         (million tonnes)         (%)          (RMB per tonne)          (%)

<S>                                        <C>      <C>            <C>        <C>       <C>             <C>

Basic organic chemicals...............     7.99     7.21           (9.8)      2,768     3,377           2.2
Synthetic resins......................     4.38     5.10           16.4       5,163     6,017          16.5

                                      52
<PAGE>

Synthetic rubber......................     0.51     0.55            7.8       6,468     8,513          31.6
Synthetic fiber.......................     1.3      1.72           24.6       9,022     9,300           3.1
Synthetic fiber monomers
  and polymers........................     2.04     2.62           28.4       5,338     5,791           8.5
Chemical fertilizer...................     2.72     2.03          (25.4)      1,084     1,165           7.5

</TABLE>

         In 2003, the chemicals segment's operating expenses were RMB 100.3
billion (US$12.1 billion), representing an increase of RMB 17.0 billion (US$2.1
billion), or 20.4%, from 2002. Partly because the segment expanded and upgraded
certain ethylene and other downstream facilities, production significantly
increased. As a result, expenses on various feedstock and auxiliary materials,
other variable expenses and fixed costs all increased. Among others:

     o    Consumption of feedstock and auxiliary materials increased by 2.74
          million tonnes, the average unit price increased by RMB 228 (US$27.5)
          per tonne. As a result, the purchased costs of feedstock, operating
          supplies and related expenses increased by approximately RMB 12.6
          billion (US$1.5 billion) compared with 2002.

     o    The losses on disposal of low-efficiency assets increased by RMB 0.89
          billion (US$107.5 million) as a result of the segment's efforts to
          optimize its asset structure.

     o    Provision for the impairment losses on assets increased by RMB 0.45
          billion (US$54.4 million).

     o    The losses on disposal of spare parts increased by RMB 0.27 billion
          (US$32.6 million).

     o    Selling expenses increased by RMB 0.18 billion (US$21.7 million), due
          to the increases in the production and sales volumes.

     o    Depreciation and amortization were RMB 8.0 billion (US$1.0 billion),
          representing an increase of RMB 0.14 billion (US$16.9 million) over
          2002.

         In 2003, the segment's operating income was RMB 3.5 billion (US$0.4
billion), representing an increase of approximately RMB 2.4 billion (US$0.3
billion) from 2002. The increase was largely because the segment has completed
expansion and upgrading of certain of its facilities, which resulted in the
increase of production and sales volumes of major products. In addition, sales
prices of a number of major products also contributed to the increased
operating income.

         Corporate and others

         Our corporate and others segment mainly involves trading activities of
our import and export subsidiaries, our research and development activities as
well as managerial activities at our corporate headquarters.

         Year Ended December 31, 2004 compared with Year Ended December 31, 2003

         In 2004, the operating revenues of corporate and others segment were
approximately RMB 82.2 billion (US$9.9 billion), representing an increase of
26.1% from 2003. Such operating revenues mainly consisted of the consolidated
operating revenues of China Petrochemical International Co., Ltd. and its
subsidiaries. The increase was largely because we increased our import and
export trading volume and other business transactions to capture the
opportunities presented by the high prices of crude oil and petroleum products.

         In 2004, the operating expenses of corporate and others were
approximately RMB 84.1 billion (US$10.1 billion), representing an increase of
25.5% from 2003. The increase was largely because the purchasing costs of China
Petrochemical International Co., Ltd. and its subsidiaries increased
concurrently with its increased operating revenues.

         In 2004, the operating losses of the corporate and others segment were
approximately RMB 1.9 billion (US$0.2 billion), representing an increase of RMB
0.1 billion (US$0.01 million) over 2003.

                                      53
<PAGE>

         Year Ended December 31, 2003 compared with Year Ended December 31, 2002

         In 2003, the operating revenues of corporate and others were
approximately RMB 65.2 billion (US$7.9 billion), representing an increase of
40.5% from 2002. Such operating revenues mainly consisted of the consolidated
operating revenues of China Petrochemical International Co., Ltd. and its
subsidiaries. The increase was largely because we increased our import and
export trading volume and other business transactions to capture the
opportunities presented by the high prices of crude oil and petroleum products.

         In 2003, the operating expenses of corporate and others were
approximately RMB 67.0 billion (US$8.1 billion), representing an increase of
41.4% from 2002. The increase was largely because the purchasing costs of
China Petrochemical International Co., Ltd. and its subsidiaries increased
concurrently with its increased revenue.

         In 2003, the operating losses of the corporate and others segment were
approximately RMB 1.8 billion (US$0.2 billion), representing an increase of RMB
0.8 billion (US$0.1 billion) over 2002. The increase was primarily due to the
incurrence of RMB 1.6 billion (US$193.3 million) in research development
expenses by our headquarters and research institutes in 2003, representing an
increase of approximately RMB 0.5 billion (US$60.4 million) compared with 2002.
In addition, expenses of RMB 0.12 billion (US$14.5 million) related to the
stock appreciation rights were recorded in 2003 under "corporate and others".

         D.   LIQUIDITY AND CAPITAL RESOURCES

         Our primary sources of funding have been cash provided by operating
activities and short-term and long-term borrowings and our primary uses of
funds have been for working capital, capital expenditures and repayment of
short-term and long-term borrowings.

         As of December 31, 2004, our short-term debts (including short-term
loans from Sinopec Group Company and its affiliates) were RMB 41.0 billion
(US$5.0 billion) and accounted for 29.6% of our total short-term and long-term
debts (which long-term debts include interest free subordinated loan from
Sinopec Group Company in the amount of RMB 97.6 billion due in 2020).

         In March 2004, we issued 10-year domestic corporate bonds of RMB 3.5
billion (US$0.4 billion) at an interest rate of 4.61% per year. The issuance of
bonds can broaden our financing channel and reduce the average cost of funds.
The proceeds raised are used to fund our capital expenditures.

         Our future debt level is dependent primarily on results of operations,
the capital expenditure plan and cash that may be generated from assets
dispositions. We believe that we have substantial borrowing capacity to meet
unanticipated cash requirements.

         The following table sets forth a condensed summary of the statements
of cash flows for the periods indicated and selected balance sheet items at the
end of the periods indicated.

<TABLE>
<CAPTION>

                                                                             For the Years Ended
                                                                                December 31,
                                                                             --------------------
                                                                          2002    2003    2004      2004
                                                                          ----    ----    ----      ----
                                                                           RMB     RMB    RMB        US$
                                                                                  (in billions)

<S>                                                                      <C>      <C>      <C>        <C>

Net cash from operating activities:
   Net cash provided by operations(1)..............................      58.3     72.6     104.0      12.5
   Changes in working capital and other
     assets and liabilities(2).....................................      10.8      3.6     (13.3)     (1.6)
   Net interest and tax paid(3)....................................     (12.4)   (14.1)    (21.6)     (2.6)
                                                                       --------  ------   -------    -------
          Total....................................................      56.7     62.1      69.1       8.3
                                                                       --------  ------   -------    -------
Cash flows from investing activities:
   Capital expenditure including capital expenditure of jointly
      controlled entities.........................................      (42.6)   (48.5)    (73.6)     (8.8)
   Purchase of investments net of proceeds from disposal of
     investments...................................................      (1.8)    (1.4)     (1.0)     (0.1)
   Increase in time deposits less maturity of time deposits........       0.8     (1.2)      0.3       0.0
   Proceeds from disposal of property, plant and equipment.........       0.5      0.4       0.3       0.0
                                                                       --------  ------   -------    -------
          Total....................................................     (43.1)   (50.7)    (74.0)     (8.9)
                                                                       --------  ------   -------    -------

                                      54
<PAGE>

Cash flows from financing activities:
   Proceeds from bank and other loans including those of jointly
     controlled entities, net of repayments........................      (7.7)    (6.8)     13.7       1.6
   Proceeds from issuance of corporate bonds, net of issuing
     expenses                                                               -        -       3.5       0.4
   Contribution from minority interest, net of distributions to
     minority interests............................................      (0.2)     0.2       0.2       0.0
   Dividend paid...................................................      (8.7)    (7.8)     (8.7)     (1.0)
   Cash and cash equivalents distributed to Sinopec Group
     Company.......................................................         -        -      (3.7)     (0.4)
                                                                       --------  ------   -------    -------
          Total....................................................     (16.6)   (14.4)      5.0       0.6
                                                                       --------  ------   -------    -------
Net increase/(decrease) in cash and cash equivalents...............      (3.0)    (3.0)      0.1       0.0
                                                                       ========  ======   =======    =======
Cash and cash equivalents at end of year...........................      19.3     16.3      16.4       2.0

--------------------

(1)  Represents income/(loss) before income tax and minority interests as adjusted for depreciation,
     depletion and amortization, dry hole cost, income from associates, investment income, interest
     income, interest expense, gain from issuance of shares by a subsidiary, unrealized foreign exchange
     (gains)/losses, loss on disposal of property, plant and equipment, and impairment losses on
     long-lived assets.
(2)  Represents decreases/(increases) in current assets, increases/(decreases) in current liabilities and
     increases in other assets, net of other liabilities.
(3)  Represents interest received, interest paid, investment income received, and income tax paid.

</TABLE>

         Net Cash from Operating Activities

         Net cash provided by operations, which represents income/(loss)
before income tax and minority interests as adjusted for depreciation,
depletion and amortization, dry hole cost, income from associates, investment
income, interest income, interest expense, gain from issuance of shares by a
subsidiary, unrealized foreign exchange (gains)/losses, loss on disposal of
property, plant and equipment, and impairment losses on long-lived assets,
increased from RMB 72.6 billion in 2003 to RMB 104.0 billion (US$12.5 billion)
in 2004. The increase was primarily due to the increased income before income
tax and minority interests reflecting our better operating results in 2004.
Net change in working capital and other assets and liabilities, which
represents decreases/(increases) in current assets, increases/(decreases) in
current liabilities and increases in other assets, net of other liabilities,
was an outflow of RMB 13.3 billion (US$1.6 billion) in 2004, which decreased
from an inflow of RMB 3.6 billion in 2003 due to the increase in working
capital requirement driven by the expansion of our production and operation,
and the increase in purchasing costs. We believe our working capital is
sufficient to meet our present working capital requirement. Net cash provided
by operations, working capital and other assets was partially offset by the
net interest and tax paid of RMB 21.6 billion (US$2.6 billion). Net interest
and tax paid in 2004 consisted primarily of RMB 5.5 billion (US$0.7 billion)
of interest payments and RMB 16.9 billion (US$2.0 billion) of income tax paid.

         Cash Flows from Investing Activities

         Our cash outflows for capital expenditure projects amounted to RMB
42.6 billion, RMB 44.4 billion and RMB 67.6 billion (US$8.1 billion) in 2002,
2003 and 2004, respectively. In addition, we had RMB 4.1 billion and RMB 6.0
billion (US$0.7 billion) in 2003 and 2004, respectively, of capital
expenditure in our jointly controlled entities.

         We made investments of RMB 2.2 billion, RMB 1.5 billion and RMB 1.2
billion (US$0.1 billion) in 2002, 2003 and 2004, respectively, in a variety of
investments and associates. We also realized RMB 0.9 billion, RMB 0.5 billion
and RMB 0.5 billion (US$0.1 billion) in 2002, 2003 and 2004, respectively,
from the disposal of investments and property, plant and equipment.

         Cash flow from investing activities in 2004 also included a cash
inflow of RMB 0.3 billion (US$35 million) in increase in time deposits less
maturity of time deposits.

         Cash Flows from Financing Activities

         Net cash from financing activities was RMB 5.0 billion (US$0.6
billion) in 2004, primarily because our proceeds from bank and other loans
exceeded repayment of bank and other loans (including loans of jointly
controlled entities) by RMB 13.7 billion (US$1.6 billion). The net cash inflow
was further increased by the net proceeds from the issuance of corporate bonds
of RMB 3.5 billion (US$0.4 billion) in 2004. On the other hand, the cash
inflow was partially offset by the dividend paid in 2004 of RMB 8.7 billion
(US$1.0 billion).

                                      55
<PAGE>

         Cash and cash equivalents as of December 31, 2004 were RMB 16.4
billion (US$2.0 billion) as compared to RMB 16.3 billion as of December 31,
2003.

         Contractual Obligations and Commercial Commitments

         The following table sets forth our obligations and commitments to
make future payments under contracts and under contingent commitments as of
December 31, 2004.

<TABLE>
<CAPTION>

                                                                    As of December 31, 2004
                                                     ------------------------------------------------------
                                                                     Payment due by period
                                                     ------------------------------------------------------
                                                           less than                              After 5
                                                Total       1 year       1-3 years    4-5 years    years
                                                -----       ------       ---------    ---------    -----
                                                                          (RMB millions)
<S>                                           <C>           <C>          <C>          <C>           <C>

Contractual obligations(1)
Short-term debts.........................      26,723       26,723            -            -             -
Long-term debts..........................     111,885       14,298       37,119       14,808        45,660
                                              -------       ------       ------       ------        ------
Total contractual obligations............     138,608       41,021       37,119       14,808        45,660
                                              =======       ======       ======       ======        ======

Other commercial commitments(2)
Operating lease commitment...............     114,070        3,452        6,621        6,470        97,527
Capital commitment.......................      46,158       28,719       17,439            -             -
Exploration and production licenses......         705           90          195          141           279
Guarantees((3))..........................       4,828        4,828            -            -             -
                                              -------       ------       ------       ------        ------
Total commercial commitments.............     165,761       37,089       24,255        6,611        97,806
                                              =======       ======       ======       ======        ======

------------------
(1)  Contractual obligations represent on-balance sheet contractual liability as of the balance sheet
     date.
(2)  Other commercial commitments represent off-balance sheet contingent liabilities, and other potential
     cash outflows (as of the balance sheet date) which may result from contingent events.
(3)  Guarantee is not limited by time, therefore specific payment due period is not applicable. As of
     December 31, 2004, we have not entered into any off-balance sheet arrangements other than guarantees
     given to banks in respect of banking facilities granted to certain parties. As of December 31, 2004,
     the maximum amount of potential future payments under the guarantees was RMB 4,828 million. We
     monitor the conditions that are subject to the guarantees to identify whether a loss is probable,
     and will recognize any such loss under guarantees when those losses are estimable. As of December
     31, 2004, it was not probable that we would be required to make payments under these guarantees. See
     Note 27 to the consolidated financial statements for further information of the guarantees.

</TABLE>

Historical and Planned Capital Expenditure

         The following table sets forth our capital expenditure by segment for
each of the years ended December 31, 2002, 2003 and 2004 and the capital
expenditure in each segment as a percentage of our total capital expenditure
for such year.

<TABLE>
<CAPTION>

                                        2002               2003                2004                 Total
                                   ----------------   -----------------    ----------------    ----------------
                                   RMB     Percent      RMB     Percent     RMB     Percent     RMB     Percent
                                                    (in billions, except percentage data)
<S>                                <C>        <C>       <C>         <C>     <C>         <C>     <C>        <C>
Exploration and production .       20.2       48%       20.6        45%     21.2        33%     62.0       41%
Refining.....................       6.7       16         9.8        22      14.3        22      30.8       20
Marketing and distribution...       7.0       17         6.8        15      16.7        26      30.5       20
Chemicals....................       7.8       18         7.7        17      11.0        17      26.5       17
Corporate....................       0.8        1         0.5         1       1.6         2       2.9        2
                                  ------     -----     ------     -----    ------     -----    ------    ------
     Total...................      42.5      100%       45.4       100%     64.8       100%    152.7      100%
                                  ======     =====     ======     =====    ======     =====    ======    ======

</TABLE>

         In 2004, according to the prevailing market conditions and our
continued focus on our development strategies and core business, we adjusted
and improved our investment structure, strictly followed investment decision
making procedures and management methods and strengthened management of key
construction projects. As a result of the above efforts, projects construction
was accelerated. In 2004, our capital expenditure was RMB 64.8 billion (US$7.8
billion). Among which, the capital expenditure for our exploration and
production segment was RMB 21.2 billion (US$2.6 billion). We enhanced oil
reserves as well as production of crude oil and natural gas, and further
improved our profile of the possible, probable and proved reserves. As a
result, remarkable achievements were made in the exploration and development
projects in the matured fields in

                                      56
<PAGE>

eastern China, newly developed fields in western China and marine phase blocks
in southern China. In addition, our proved reserves of crude oil increased by
284 million barrels, and natural gas increased by 352 billion cubic feet. The
capital expenditure for our refining segment was RMB 14.3 billion (US$1.7
billion). The newly added primary refining capacity was 8.3 million
tonnes/year, the newly added hydro-refining capacity was 4 million tonnes/year,
and the newly added delayed coking capacity was 3.9 million tonnes/year. The
upgrading projects for improving oil product quality were progressing smoothly
and the Ningbo-Shanghai-Nanjing crude oil pipeline was completed and put into
operation. The capital expenditure for our marketing and distribution segment
was RMB 16.7 billion (US$2.0 billion), which was mainly used to construct
pipelines of refined oil products, and to further optimize the marketing
networks by acquiring and building new gas stations, and upgrading existing gas
stations. As a result, in 2004, the number of COCO petrol stations was up by
2,075, securing our leading position in its principal market and raising brand
awareness and customer loyalty. The capital expenditure for our chemicals
segment was RMB 11.0 billion (US$1.3 billion). With the investment, our
ethylene capacity was increased by 270,000 tonnes/year, synthetic resin
capacity increased by 700,000 tonnes/year, and capacity of monomers and
polymers for synthetic fibres increased by 360,000 tonnes/year. The coal
gasification projects for chemical fertilizer facilities progressed smoothly.
The capital expenditure for corporate and others was RMB 1.6 billion (US$0.2
billion), which was principally used in the construction of information
technology system.

         In addition, we incurred RMB 6.5 billion (US$0.8 billion) in capital
expenditure in 2004 on our jointly controlled entities including our ethylene
joint venture with BP in Shanghai.

         In 2005, we plan to spend RMB 62.0 billion (US$7.5 billion) in
capital expenditure. Of our planned capital expenditure, RMB 22.9 billion
(US$2.8 billion) is planned for our exploration and production segment, RMB
16.1 billion (US$1.9 billion) for our refining segment, RMB 10.4 billion
(US$1.3 billion) for our chemicals segment, RMB 11.0 billion (US$1.3 billion)
for our marketing and distribution segment and RMB 1.6 billion (US$0.2
billion) for construction of ERP system and other purposes.

         In 2005, capital expenditure will be engaged in the following areas:
In exploration and production segment, we will carry out the operation notion
of oil reserves and strive to expand qualified resources, improve the profile
of oil and gas reserves and increase production of oil and gas. In refining
segment, we intend to complete the second-phase of Ningbo-Shanghai-Nanjing
crude oil pipeline, construct the crude oil pipeline along the Yangtze River,
and speed up the revamping of selected refining projects. In chemicals
segment, we will focus on the revamping and construction of large-scale
ethylene, aromatics and PTA facilities and accelerate the coal gasification
projects. In marketing and distribution segment, we will improve the marketing
networks continually, build, acquire and upgrade petrol stations, optimize
layout of depots, promote pipeline transportation, improve operating
efficiency, and put the southwest refined oil product pipeline into operation
in the first half of 2005. Moreover, we will speed up the application of
petrol IC cards to increase marketing level based on information technologies.

         We plan to fund the capital and related expenditures principally
through cash provided by operating activities and short- and long-term debts
from domestic as well as overseas sources. Our capital expenditure plans are
subject to a number of risks and uncertainties, and our actual capital
expenditures may vary significantly from these planned amounts due to various
factors. See "Item 3 -- Key Information -- Risk Factors -- Our development
plans have significant capital expenditure and financing requirements, which
are subject to a number of risks and uncertainties".

Consumer Price Index

         According to the data provided by the National Bureau of Statistics,
the consumer price index in the PRC increased by 3.9% in 2004, compared with
1.2% in 2003 and -0.8% in 2002. Inflation in the PRC has not had a significant
impact on our results of operations in recent years.

US GAAP Reconciliation

         Our consolidated financial statements are prepared in accordance with
IFRS which differs in certain material respects from US GAAP. These
differences, as they apply to our consolidated financial statements, relate
primarily to:

     o    the US GAAP requirement that investments accounted for by the equity
          method while the investee has activities in progress necessary to
          commence its planned operations are considered as qualifying assets
          for which interest is capitalized, whereas under IFRS, such
          investments are not considered as

                                      57
<PAGE>

          qualifying assets for which interest is capitalized;

     o    the US GAAP requirement that foreign exchange differences on funds
          borrowed for property, plant and equipment be expensed, rather than
          capitalized as is allowed under IFRS;

     o    the US GAAP requirement that property, plant and equipment be
          carried at historical costs less accumulated depreciation
          (depreciation expense is based on the historical costs), whereas
          under IFRS revalued property, plant and equipment can be carried in
          the consolidated financial statements at the revalued amount less
          accumulated depreciation (depreciation expense is based on the
          revalued amount); and

     o    the US GAAP requirement that an impairment loss be recognized on an
          asset when the sum of the expected undiscounted future cash flows
          resulting from the use of the asset and its eventual disposition is
          less than the carrying amount of the asset and the requirement that
          such impairment loss cannot be reversed, rather than the IFRS
          standard which involves the asset's discounted future expected cash
          flows and which permits, in some circumstances, the reversal of
          amounts previously written down.

See Note 34 to the consolidated financial statements for further information.

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

         A.   DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

Directors

         The table and discussion below set forth certain information
concerning our directors. The current term for all our directors is three
years, which will expire in April 2006.

  Name                           Age  Positions with Sinopec Corp.
  ----                           ---  ----------------------------

Chen Tonghai                     56   Chairman of the Board of Directors
Wang Jiming                      62   Vice Chairman
Mou Shuling                      60   Director
Zhang Jiaren                     60   Director; Senior Vice President and Chief
                                      Financial Officer
Cao Xianghong                    59   Director; Senior Vice President
Liu Genyuan                      59   Director
Liu Kegu                         57   Director until April 29, 2004
Gao Jian                         55   Director since April 30, 2004
Fan Yifei                        41   Director
Chen Qingtai                     67   Independent Non-executive Director
Ho Tsu Kwok Charles              55   Independent Non-executive Director
Shi Wanpeng                      67   Independent Non-executive Director
Zhang Youcai                     63   Independent Non-executive Director
Cao Yaofeng                      51   Employee Representative Director

         Chen Tonghai, 56, is Chairman of the Board of Directors of Sinopec
Corp. Mr. Chen is also President of China Petrochemical Corporation. Mr. Chen
graduated from Northeast Petroleum Institute in September 1976 specializing in
petroleum production engineering. Mr. Chen is a professor level senior
economist. He has extensive experience in petrochemical industry
administration and macro-economic management. From March 1983 to December
1986, Mr. Chen was Deputy Head and then Head of Zhenhai Petroleum and
Petrochemical Plant under the former China Petrochemical Corporation. From
December 1986 to July 1989, Mr. Chen served as Managing Deputy Mayor of Ningbo
City, Zhejiang Province. From July 1989 to June 1991, Mr. Chen served as
Managing Deputy Director of the Planning and Economic Committee of Zhejiang
Province. From June 1991 to February 1992, Mr. Chen served as Acting Mayor of
Ningbo City. From February 1992 to January 1994, Mr. Chen served as Mayor of
Ningbo City. From January 1994 to April 1998, Mr. Chen served as Vice Minister
of the State Planning Commission. Mr. Chen served as Vice President of China
Petrochemical Corporation from April 1998 to March 2003. Mr. Chen has been
President of China Petrochemical Corporation since March 2003. Mr. Chen served
as Director and Vice Chairman of the first session of the Board of Directors
of Sinopec Corp. from February 2000 to April 2003. Mr. Chen was elected as
Director and Chairman of the Second Session of the Board of Directors of
Sinopec Corp. in April 2003.


                                      58
<PAGE>

         Wang Jiming, 62, is Vice Chairman of the board of directors of
Sinopec Corp. Mr. Wang graduated from China Eastern Petrochemical Institute in
1964 specializing in petroleum refining. Mr. Wang is a professor level senior
engineer with over 30 years' management experience in petroleum and
petrochemical industry. From November 1984 to June 1993, Mr. Wang served as a
Vice President, Acting President and President of Shanghai Petrochemical
General Plant under former China Petrochemical Corporation. Mr. Wang served as
Chairman and President of Shanghai Petrochemical Company Limited from June
1993 to February 1994 and served as a Vice President of the former China
Petrochemical Corporation (before the reorganization) and Chairman of Shanghai
Petrochemical Company from February 1994 to April 1998. Mr. Wang served as a
Vice President of Sinopec Group Company from April 1998 to February 2000. Mr.
Wang has also served as Chairman of Shanghai SECCO Petrochemical Company
Limited from December 2001 to July 2003. Mr. Wang served as Director of the
first session of the Board of Directors and President of Sinopec Corp. from
February 2000 to March 2005. In April 2003, Mr. Wang was elected as Director
and Vice Chairman of the second session of the Board of Directors of Sinopec
Corp.

         Mou Shuling, 60, is a director of Sinopec Corp. Mr. Mou graduated
from Beijing Petroleum Institute in 1968 specializing in petroleum exploration
engineering. Mr. Mou is a professor level senior engineer and has over 30
years' management experience in China's petroleum industry. From February 1992
to April 1997, Mr. Mou served as a Deputy Director and Director of Petroleum
Exploration Bureau of Jiangsu Province. From April 1997 to April 1998, Mr. Mou
served as Director of Shengli Petroleum Administration Bureau. Mr. Mou served
as Vice President of Sinopec Group Company from April 1998 to February 2000.
Mr. Mou served as Director of Sinopec Corp since February 2002 and was a Vice
President of Sinopec Corp. from February 2000 to April 2003 and a Senior Vice
President of Sinopec Corp. from April 2003 to March 2005. In April 2003, Mr.
Mou was elected as Director of the second session of the Board of Directors of
Sinopec Corp.

         Zhang Jiaren, 60, is a director, Senior Vice President and Chief
Financial Officer of Sinopec Corp. Mr. Zhang graduated from Hefei Industrial
University in 1966 specializing in electrical engineering. Mr. Zhang is a
professor level senior economist with over 30 years' management experience in
petrochemical industry. From August 1987 to July 1994, Mr. Zhang served as a
Vice President and President of Zhenhai Petroleum and Petrochemical Plant, a
subsidiary of Old Sinopec. From July 1994 to April 1998, Mr. Zhang served as
Chairman and President of Zhenhai Refining and Petrochemical Company. Mr.
Zhang served as a Vice President of Sinopec Group Company from April 1998 to
February 2000. Mr. Zhang served as Director of the first session of the Board
of Directors and Vice President of Sinopec Corp. from February 2000 to April
2003. Mr. Zhang has been Chief Financial Officer of Sinopec Corp. since March
2000. In April 2003, Mr. Zhang was elected as Director of the second session
of the Board of Directors of Sinopec Corp. and was appointed as Senior Vice
President and Chief Financial Officer of Sinopec Corp.

         Cao Xianghong, 59, is a director and Senior Vice President of Sinopec
Corp. Mr. Cao graduated from Nanjing Petrochemical Institute in 1967
specializing in high polymer chemistry. Mr. Cao is a professor level senior
engineer and an Academician of China Academy of Engineering. Mr. Cao has over
30 years' management experience in China's petrochemical industry. From July
1984 to August 1997, Mr. Cao served as a Vice President and Chief Engineer of
Beijing Yanshan Petrochemical Company, a subsidiary of the former China
Petrochemical Corporation (before the reorganization). From August 1997 to
February 2000, Mr. Cao served as President, Vice Chairman and Chairman of
Beijing Yanshan Petrochemical Company Limited and Chairman of Beijing Yanhua
Petrochemical Company Limited. Mr. Cao has been a Director of Sinopec Corp.
since February 2000 and was a Vice President of Sinopec Corp. from February
2000 to April 2003. In April 2003, Mr. Cao was elected as Director of the
second session of the Board of Directors of Sinopec Corp. and was appointed as
Senior Vice President of Sinopec Corp.

         Liu Genyuan, 59, is a director of Sinopec Corp. Mr. Liu is Managing
Vice President of Sinopec Group Company. Mr. Liu graduated from Shanghai
Science and Technology University in July 1968 specializing in radiation
chemistry. He is a professor level senior economist and has over 30 years'
extensive management experience in China's petroleum and petrochemical
industry. From May 1995 to July 2001, he served as President of Shanghai
Gaoqiao Petrochemical Company. Mr. Liu has been Managing Vice President of
Sinopec Group Company since July 2001. Mr. Liu was elected as Director of the
second session of the Board of Directors of Sinopec Corp. in June 2003.

         Liu Kegu, 57, is a director of Sinopec Corp. Mr. Liu is Vice
President of China Development Bank. Mr. Liu graduated from the Renmin
University of China in February 1982 specializing in politics and economics.
He then obtained a doctorate degree from Northeast Finance University in July
2000 specializing in finance. Mr. Liu was engaged in economic management over
a long period of time, and has accumulated extensive experience in
macro-economic management. From September 1986 to March 1990, he was Vice
President of

                                      59
<PAGE>

Beijing Public Transportation Company. From March 1990 to October 1996, he
served as Vice Chairman of Financial Structure and Tax System Reform Bureau,
and then as Chairman of Taxation Administration Bureau, of State Ministry of
Finance. From October 1996 to May 1999, he was the assistant to Governor of
Liaoning Province. From May 1999 to September 2002, he served as Vice Governor
of Liaoning Province. Mr. Liu has been Vice President of China Development Bank
since September 2002. Mr. Liu was elected as Director of the second session of
the Board of Directors of Sinopec Corp. in June, 2003.

         Gao Jian, 55, is a director of Sinopec Corp. He is Deputy Governor of
the State Development Bank. In September 1982, Mr. Gao graduated from the
Beijing Institute of Political Science and Law as a postgraduate specializing
in politics and economics. In July 1992, he graduated from the Finance and
Science Research Institute of the Ministry of Finance of the State with a Ph.D
degree specializing in finance. From November 1997 to June 1998, he conducted
postdoctoral researches at the Faculty of Economics at Harvard University, USA
and is a Senior Economist. Mr. Gao has been engaged in researches in economic
theories and financial management for a long period of time and has extensive
experience in economics and financial management. From January 1989 to April
1994, he had been the Deputy Head of the Department of Treaty and Law of the
Ministry of Finance and the Deputy Head of the State Liabilities Management
Department. From April 1994 to October 1998, he was the Head of the State
Liabilities Department and the Head of the Department of Treaty and Law of the
Ministry of Finance. From October 1998 to April 2001, he was the Chief
Economist, the Head of the Funds Bureau and, concurrently, the Chief
Representative of the Hong Kong Representative Office of the State Development
Bank. From April 2001 to July 2003, he was the Assistant to the Head of the
Funds Bureau and, concurrently, the Chief Representative of the Hong Kong
Representative Office of the State Development Bank. Since July 2003, he is
the Deputy Governor of the State Development Bank. Mr. Gao has been our
director since April 30, 2004.

         Fan Yifei, 41, is a director of Sinopec Corp. Mr. Fan is Assistant
Governor of China Construction Bank. Mr. Fan graduated from Changzhou
Financial and Economic School in July 1982 specializing in infrastructure
finance and credit. He obtained a master's degree in finance from the
Financial Science Research Institute of the Ministry of Finance in September
1990. In July 1993, he obtained a doctoral degree in finance from the Renmin
University of China. He is a senior accountant. He has long engaged in
financial management work, and has relatively extensive experience in
financial management. From February 1994 to September 1994, he was the
Assistant General Manager and Manager of the Finance Department of the Trust
Investment Company of China Construction Bank. From September 1994 to July
1996, he served as a Deputy Director of the Capital Planning Department of
China Construction Bank. He was the General Manager of the Finance and
Accounting Department of China Construction Bank from July 1996 to January
1998. He was the General Manager of the Planning and Finance Department of
China Construction Bank from January 1998 to February 2000. He has been the
Assistant Governor of China Construction Bank since February 2000. Mr. Fan was
elected as Director of the second session of the Board of Directors of Sinopec
Corp. in April 2003.

         Chen Qingtai, 67, is an independent non-executive director of Sinopec
Corp. Mr. Chen graduated from Tsinghua University in 1964 specializing in
power and dynamics engineering. Mr. Chen is a researcher and a economist in
China. From October 1982 to July 1992, Mr. Chen was Chief Engineer, President
and Chairman of China No. 2 Automobile Works. From July 1992 to April 1993,
Mr. Chen served as a Deputy Director of the State Council Economic and Trade
Office. From April 1993 to March 1998, Mr. Chen served as Deputy Director of
State Economic and Trade Commission. From March 1998 to November 2004, Mr.
Chen served as Vice Minister of the Development Research Center at the State
Council ("DRC"). Since July 2000, he has been Director of the Public
Management College under Tsinghua University. Mr. Chen has been Vice Minister
of State Council Development and Research Center and a member of the National
Committee of the tenth session of Chinese People's Political Consultative
Conference since March, 2003. From November 2004, Mr. Chen has been the senior
research fellow at the DRC. Mr. Chen served as Independent Non-executive
Director of the first session of the Board of Directors of Sinopec Corp. from
February 2000 to April 2003. In April 2003, Mr. Chen was elected as
Independent Non-executive Director of the second session of the Board of
Directors of Sinopec Corp.

         Ho Tsu Kwok Charles, 55, is an independent non-executive director of
Sinopec Corp. Mr. Ho is President and a director of Hong Kong Tobacco Company
Limited, a cigarette manufacturer and distributor in the Asia Pacific. Mr. Ho
is also Chairman and a director of Global China Investments Limited, a
joint-venture with a Canadian provincial government pension fund and the
Ontario Municipal Employees Retirement System, and he is responsible for
devising investment and management strategies of Global China Investments
Limited. Mr. Ho is the Chairman of Global China Investments Holdings Limited
and a Non-executive director of China National Aviation Company Limited, each
listed on the Hong Kong Stock Exchange. Mr. Ho is also a member of the Chinese
People's Political Consultative Conference and a economic consultative advisor
to the Shandong Provincial Government. He is a Trustee of the University of


                                      60
<PAGE>

International Business and Economics of China and an Honorary Trustee of
Peking University. Mr. Ho served as Independent Non-executive Director of the
first session of the Board of Directors of Sinopec Corp. from June 2000 to
April 2003. In April 2003, Mr. Ho was elected as Independent Non-executive
Director of the second session of the Board of Directors of Sinopec Corp.

         Shi Wanpeng, 67, is an independent non-executive director of Sinopec
Corp. Mr. Shi is a member of the Ninth Session of the National Committee of
the Chinese People's Political Consultative Conference. Mr. Shi graduated from
Northern Jiaotong University in August 1960 specializing in railway
transportation administration. He is a professor level senior engineer. He has
long engaged in economic management work, and has extensive experience in
macro-economic control. From January 1983 to January 1987, he served as a
Deputy Director of the Transport Bureau of the State Economic Commission. From
January 1987 to May 1988, he was the Director of the Economic and Technical
Co-operation Bureau of the State Economic Commission. From May 1988 to July
1991, he was the Director of the Production and Dispatch Bureau of the State
Planning Commission. From July 1991 to July 1992, he served as a Deputy
Secretary General of the Production Office of the State Council. From July
1992 to April 1993, he served as a Deputy Director of the Economic and Trade
Office of the State Council. From April 1993 to July 1997, he was a Vice
Minister of the State Economic and Trade Commission. From July 1997 to March
1998, he was the Chairman (minister level) of the China Textiles Association.
From March 1998 to February 2002, he served as a Vice Minister of the State
Economic and Trade Commission. He has been a member of the National Committee
of the tenth session of the Chinese People's Political Consultative Conference
and Deputy Director of its Economic Committee since March 2003. Mr. Shi was
elected as Independent Non-executive Director of the second session of the
Board of Directors of Sinopec Corp. in April 2003.

         Zhang Youcai, 63, is an independent non-executive director of Sinopec
Corp. Mr. Zhang is Chairman of The Chinese Institute of Chief Accountants. Mr.
Zhang graduated from Nanjing Industrial University in August 1965 specializing
in inorganic chemistry. He is a professor. He has long engaged in business
administration, financial management and government work, and has extensive
experience in industrial, economic, financial and accounting management. From
January 1968 to August 1980, he served as a technician, Vice-president, Deputy
Secretary of the Party Committee and President, respectively, of Nantong
Chemical Fertilizer Plant. From August 1980 to January 1982, he was a Deputy
Director and a member of the Leading Party Group of the Industrial Bureau of
Nantong Region. From January 1982 to February 1983, he served as a Deputy
Director of the Planning Commission of Nantong Region. From February 1983 to
November 1989, he served as a Deputy Mayor, Deputy Secretary of the Party
Committee and Mayor, respectively, of Nantong City. He was a Vice Minister and
a member of the Leading Party Group of the Ministry of Finance from December
1989 to July 2002 (from May 1994 to March 1998 of this period, he served
concurrently as the Director of the State-owned Assets Administration Bureau).
He has been the Chairman of The Chinese Institute of Chief Accountants since
November 2002. He has also been the member of the standing committee of the
tenth session of the National People's Congress and Deputy Director of its
Financial and Economic Committee since March 2003. Mr. Zhang was elected as
Independent Non-executive Director of the second session of the Board of
Directors of Sinopec Corp. in April 2003.

         Cao Yaofeng, 51, is a director of Sinopec Corp. Mr. Cao is Chairman
of the board of directors of Sinopec Shengli Oilfield Company Limited. Mr. Cao
graduated from the General Section of East China Petroleum Institute in
September 1977 specializing in mining machinery. He obtained a master's degree
in mechanical design and theories from the Petroleum University (East China)
in June 2001. He is a professor level senior engineer. From April 1997 to
December 2001, he was a Deputy Director of Shengli Petroleum Administration
Bureau under China Petrochemical Group Company. He acted concurrently as a
Vice-chairman of the board of directors of Sinopec Shengli Oilfield Company
Limited in May 2000 to December 2001. From December 2001 to December 2002, he
was a director and the General Manager of Sinopec Shengli Oilfield Company
Limited. He has also been the Chairman of the board of directors of Sinopec
Shengli Oilfield Company Limited since December 2002. From October 2004, he
has been the assistant to the President of China Petrochemical Corporation.
Mr. Cao was elected as Employee Representative Director of the second session
of the Board of Directors of Sinopec Corp. in April 2003.

Supervisors

         The table and discussion below set forth certain information
concerning our supervisors. Messrs. Yu Qingbo, Hou Shaojian and Jiang Baoxing
have served up their respective terms as our supervisors and were no longer
our supervisors after our shareholders' extraordinary meeting on April 22,
2003 (the "EGM"). Mr. Wang Zuoran was re-elected as our supervisor at the EGM
and was subsequently elected as Chairman of our board of

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<PAGE>

supervisors. Messrs. Zhang Chongqing, Wang Peijun and Wang Xianwen were elected
as our supervisors at the EGM. Mr. Cui Jianmin was elected as our independent
supervisor at the EGM. Messrs. Zhang Baojian and Kang Xianzhang were elected as
our supervisors, and Mr. Li Yonggui was elected as our independent supervisor
at the EGM. In addition, our employees have elected Messrs. Su Wensheng, Cui
Guoqi, Zhang Xianglin and Zhang Haicao as our employee representative
supervisors as of April 22, 2003. The current term of our supervisors is three
years, which will expire in April 2006.

  Name                               Age    Position with the Company
  ----                               ---    -------------------------

Wang Zuoran                          54   Chairman of the Board of Supervisors
Zhang Chongqing                      60   Supervisor
Wang Peijun                          59   Supervisor
Wang Xianwen                         60   Supervisor
Zhang Baojian                        60   Supervisor
Kang Xianzhang                       56   Supervisor
Cui Jianmin                          72   Independent Supervisor
Li Yonggui                           64   Independent Supervisor
Su Wensheng                          48   Employee Representative Supervisor
Cui Guoqi                            51   Employee Representative Supervisor
Zhang Xianglin                       58   Employee Representative Supervisor
Zhang Haichao                        47   Employee Representative Supervisor

         Wang Zuoran, 54, is Chairman of the board of supervisors of Sinopec
Corp. Mr. Wang graduated from Shandong Economic Administration Institute in
1994 specializing in economic administration. Mr. Wang is a professor level
senior economist and he has extensive experience in the management of
petroleum industry. From July 1994 to February 2000, Mr. Wang served as a
Deputy Director and chief officer of Shengli Petroleum Administration Bureau.
From February 2000 to July 2001, Mr. Wang was the Assistant to President of
China Petrochemical Corporation. Mr. Wang has been Director of Disciplinary
Supervision Committee of China Petrochemical Corporation since July 2001. Mr.
Wang served as Supervisor of the first session of the Supervisory Committee of
Sinopec Corp. from February 2000 to April 2003. In April 2003, Mr. Wang was
elected as Supervisor and Chairman of the second session of the Supervisory
Committee of Sinopec Corp.

         Zhang Chongqing, 60, is a supervisor of Sinopec Corp. Mr. Zhang
graduated from China University of Science and Technology in 1967 specializing
in polymer chemistry. He is a professor level senior economist. From April
1991 to February 1993, Mr. Zhang served as a Deputy President of Planning
Institute of Old Sinopec. From February 1993 to December 1998, Mr. Zhang
served as a Deputy Director and Director of General Administrative Office of
Old Sinopec. Mr. Zhang has been Director of General Administrative Office of
Sinopec Group Company since December 1998. Mr. Zhang served as Supervisor of
the first session of the Supervisory Committee of Sinopec Corp. from February
2000 to April 2003. In April 2003, Mr. Zhang was elected as Supervisor of the
second session of the Supervisory Committee of Sinopec Corp.

         Wang Peijun, 59, is a supervisor of Sinopec Corp. Mr. Wang graduated
from Northeastern Petroleum Institute in 1970 specializing in oil and gas
field engineering. He is a professor level senior economist. From June 1989 to
August 1991, Mr. Wang was Head of Qilu Petroleum and Petrochemical Company of
Old Sinopec. From August 1990 to December 1998, he served as a Deputy Director
and Director of the Human Resource Department of Old Sinopec. Since December
1998, Mr. Wang has been Director of the Human Resource Department of Sinopec
Group Company. Mr. Wang served as Supervisor of the first session of the
Supervisory Committee of Sinopec Corp. from February 2000 to April 2003. In
April 2003, Mr. Wang was elected as Supervisor of the second session of the
Supervisory Committee of Sinopec Corp.

         Wang Xianwen, 60, is a supervisor of Sinopec Corp. Mr. Wang graduated
from Jilin University in 1968 specializing in chemistry. He is a professor
level senior economist. From April 1984 to March 1990, Mr. Wang served as a
Deputy Manager of Jinzhou Petrochemical Company of Old Sinopec. From March
1990 to December 1998, Mr. Wang served as Deputy Director and Director of Old
Sinopec's Auditing Bureau of the former China Petrochemical Corporation. Mr.
Wang has been Head of Sinopec Group Company's Auditing Bureau since December
1998. Mr. Wang has been Director of Sinopec Corp.'s Auditing Bureau since
February 2000. Mr. Wang served as Supervisor of the first session of the
Supervisory Committee of Sinopec Corp. from February 2000 to April 2003. In
April 2003, Mr. Wang was elected as Supervisor of the second session of the
Supervisory Committee of Sinopec Corp.

         Zhang Baojian, 60, is a supervisor of Sinopec Corp. Mr. Zhang is
Director of the Finance and Planning Department of China Petrochemical Group
Company and Vice-chairman of the Board of Directors of Sinopec Finance Company
Limited. Mr. Zhang graduated from Shandong Financial and Economic College in
July 1968 specializing in accounting. He is a professor level senior
accountant. From October 1985 to April 1989, he was the Chief Accountant of
Yueyang Petrochemical General Plant. From April 1989 to October 1995, he
served as the chief accountant and a Deputy Director of the Finance Department
of the former China Petrochemical Corporation. He acted concurrently as the
Vice-chairman of Sinopec Finance Company Limited from May 1993 to October
1995. From October 1995 to February 2000, he served as the Director of the
Finance Department of the former China Petrochemical Corporation (before the
reorganization), and concurrently served as Chairman of Sinopec Finance
Company Limited. Mr. Zhang has been Director of the Finance & Planning
Department of China Petrochemical Group Company as well as Vice-chairman of
the board of directors of Sinopec Finance Company Limited. He has been Vice
Chairman of the Board of Directors of Sinopec Finance Company Limited since
October 2004. Mr. Zhang was elected as Supervisor of the second session of the
Supervisory Committee of Sinopec Corp. in April 2003.


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<PAGE>



         Kang Xianzhang, 56, is a supervisor of Sinopec Corp. Mr. Kang
graduated from the Correspondence Teaching Department of the Party School of
the Beijing Municipal Party Committee in March 1988 specializing in ideology
politics. He also graduated from the Correspondence Teaching College of the
Party School of the Central Committee of the Communist Party of China in
December 1992 specializing in party and political affairs management. He is a
senior political worker. From June 1995 to April 1996, he was the Deputy
Director of the Organization Department of the Communist Party Committee of
the Tibet Autonomous Region. From April 1996 to May 1997, he was a senior
researcher of the deputy director level in the Cadre Allocation Bureau of the
Organization Department of the Central Committee of the Communist Party of
China. He acted as the Deputy Secretary of the Communist Party Committee of
the Coal Scientific Research Institute of the Ministry of Coal Industry from
May 1997 to October 1998. From October 1998 to May 1999, he was a supervisor
of the deputy director level in the Discipline Inspection Group and the
Supervisory Bureau of China Petrochemical Group Company, and acted as a Deputy
Director of the Supervisory Bureau of the same company from May 1999 to March
2001. He was the Deputy Director of the Supervisory Department of Sinopec
Corp. from February 2000 to March 2001. He has been a Deputy Head of the
Discipline Inspection Group of the Leading Party Group and Director of the
Supervisory Bureau of China Petrochemical Group Company, as well as Director
of the Supervisory Department of Sinopec Corp. since March 2001. Mr. Kang was
elected as Supervisor of the second session of the Supervisory Committee of
Sinopec Corp. in April 2003.

         Cui Jianmin, 72, is an independent supervisor of Sinopec Corp. Mr.
Cui graduated from the People's University of China in 1962 specializing in
planning. Mr. Cui is a senior auditor and has extensive management experience
in audit and finance fields. From June 1983 to April 1985, Mr. Cui served as
Director of Industry and Transportation Bureau of State Audit Office. From
January 1985 to April 1995, Mr. Cui has served as a Deputy Auditor-General and
Managing Deputy Auditor-General of State Audit Office. From December 1995 to
November 2004, Mr. Cui served as Chairman of the Chinese Certified Public
Accountants Association. Mr. Cui served as Independent Supervisor in the first
session of Supervisory Committee of Sinopec Corp. from April 2000 to April
2003 and was elected as Independent Supervisor of the second session of
Supervisory Committee of Sinopec Corp. in April 2003.

         Li Yonggui, 64, is an independent supervisor of Sinopec Corp. Mr. Li
is Chairman of the China Taxation Consulting Association. Mr. Li graduated from
Shandong Financial and Economic College in July 1965 specializing in finance.
He is a senior economist and a certified public accountant. He has long engaged
in tax management work and has extensive management experience in the field of
taxation. From February 1985 to December 1988, he was the Deputy Director of
the Taxation Bureau of the Ministry of Finance. He served as the Chief
Economist of the State Administration of Taxation from December 1988 to April
1991. From April 1991 to February 1995, he served as the Deputy Director of the
State Administration of Taxation. He was the Chief Economist of the State
Administration of Taxation of China From February 1995 to September 2001. Mr.
Li has been the Chairman of the China Taxation Consulting Association since May
2000. Mr. Li was elected as Independent Supervisor of the second session of the
Supervisory Committee of Sinopec Corp. in April 2003.

         Su Wensheng, 48, is an employee representative supervisor of Sinopec
Corp. Mr. Su is Acting Deputy Secretary of the Party Working Committee of the
Headquarter responsible for Sinopec Corp.'s Western China E&P operation, and
Director of the Ideology & Politics Department and a Deputy Secretary of the
Affiliated Party Committee of China Petrochemical Group Company. Mr. Su
graduated from Tsinghua University in December 1980 specializing in
environmental engineering. He obtained a master's degree in management science
and engineering from Petroleum University (Beijing) in June 2000. He is a
senior engineer. From

                                      63
<PAGE>

September 1986 to November 1996, he was a Deputy Secretary of the Party
Committee of the former Beijing Designing Institute, and acted concurrently as
the Secretary of the Disciplinary Committee of the same Institute. From
November 1996 to December 1998, he was the Secretary of the Party Committee of
Beijing Designing Institute of the former China Petrochemical Corporation. Mr.
Su has been the Director of the Ideology & Politics Department and a Deputy
Secretary of the Affiliated Party Committee of China Petrochemical Group
Company since October 1998. He has acted concurrently as the Acting Deputy
Secretary of the Party Working Committee of the Western New Region Exploration
Headquarter of Sinopec Corp. since December 2001. Mr. Su was elected as
Employee Representative Supervisor of the second session of the Supervisory
Committee of Sinopec Corp. in April 2003.

         Cui Guoqi, 51, is an employee representative supervisor of Sinopec
Corp. Mr. Cui graduated from the Correspondence Teaching College of People's
University in December 1985 specializing in industrial business management. In
January 1997, he obtained a master's degree in business management from the
Business Management School of Renmin University of China. He is a senior
economist. Mr. Cui has served as Chairman of the Trade Union of Sinopec
Yanshan Company since February 2000. Mr. Cui has been a member of the
Executive Committee of the All China Federation of Trade Unions since December
2000, and a member of the Standing Committee of the National Committee of the
Union of Chinese Energy and Chemical Industries since December 2001. Mr. Zhang
was elected as Employee Representative Supervisor of the second session of the
Supervisory Committee of Sinopec Corp. in April 2003.

         Zhang Xianglin, 58, is an Employee Representative Supervisor of
Sinopec Corp. Mr. Zhang graduated from Beijing Machinery College in July 1970
specialising in precision machine tool. He is a professor level senior
political worker. From January 2000 to March 2004, he served as a Director and
Chairman of the Trade Union of Sinopec Yangzi Petrochemical Company Limited.
He has been deputy secretary of the Communist Party Committee of Sinopec
Yangzi Petrochemical Company Limited since July 2002. From March 2004, he has
been the secretary of the Commission for Discipline Inspection and
concurrently the convener of the Supervisory Committee of Sinopec Yangzi
Petrochemical Company Limited. Mr. Zhang was elected Employee Representative
Supervisor of the Second Session of the Supervisory Committee of Sinopec Corp.
in April 2003.

         Zhang Haichao, 47, is an Employee Representative Supervisor of
Sinopec Corp. Mr. Zhang graduated from Zhoushan Commercial Technology School
in December 1979 specialising in oil storage and transportation. He also
graduated from Jilin Chemical Institute in July 1985 specialising in lubricant
oil reclaiming process. From January 2001 to June 2002, he participated in the
business administration programme at Macau Science & Technology University. He
is an economist. He served as Deputy General Manager of Zhejiang Oil Products
Company from March 1998 to September 1999. He has served as General Manager of
Zhejiang Oil Products Company since September 1999, and has served as Manager
of Sinopec Zhejiang Oil Products Company since February 2000. Since April
2004, he serves as chairman of the BP Sinopec (Zhejiang) Petroleum Company
Limited. He has been secretary of the Communist Party Committee, vice chairman
and deputy president of the Sinopec Sales Company Limited since October 2004.
Mr. Zhang was elected Employee Representative Supervisor of the Second Session
of the Supervisory Committee of Sinopec Corp. in April 2003.

Other Executive Officers

         Wang Tianpu, 42, is President of Sinopec Corp. Mr. Wang graduated from
Qingdao Chemical Institute specializing in fundamental organic chemistry in
July 1985. He then graduated from Dalian University of Science and Technology
in July 1996 and obtained a master's degree in business administration. In
August 2003, he graduated from Zhejiang University specializing in Chemical
Engineering and obtained a doctor's degree. He is a professor level senior
engineer, and has accumulated extensive experience in production management in
petrochemical industry. From March 1999 to February 2000, he was Vice President
of Qilu Petroleum and Petrochemical Company under Old Sinopec. From February
2000 to September 2000, he was Vice President of Sinopec Corp.'s Qilu branch
company. From September 2000 to August 2001, he was President of Sinopec
Corp.'s Qilu branch company. Mr. Wang served as Vice President of Sinopec Corp.
from August 2001 to April 2003 and as Senior Vice President of Sinopec Corp.
from April 2003 to March 2005. He was appointed as President of Sinopec Corp.
in March 2005.

         Wang Zhigang, 48, is a Vice President of Sinopec Corp. Mr. Wang
graduated from East China Petroleum Institute in January 1982 specialising in
oil production, and then obtained a master degree from China Petroleum
University in June 2000 specialising in oil and gas development engineering.
In September 2003, he obtained a doctor degree of from Institute of Geology


                                      64
<PAGE>


and Geophysics of China Academy of Sciences specialising in geology. He is a
professor level senior engineer. From February to June in 2000, he was Vice
President of Sinopec Shengli Oil Field Company Limited. From June 2000 to
December 2001, Mr. Wang served as Director and President of Sinopec Shengli
Oil Field Company Limited. He was appointed as Non-executive Vice Chairman of
the Committee of Economics and Trade of Ningxia Hui Autonomous Region from
November 2001 to May 2003. From June 2003, he has acted as the Director of
Exploration and Production Department of Sinopec Corp. Mr. Wang served as Vice
President of Sinopec Corp. from April 2003 to March 2005. He was appointed as
Senior Vice President of Sinopec Corp. in March 2005.

         Zhang Jianhua, 41, is a Vice President of Sinopec Corp. Mr. Zhang
graduated from East China Chemistry and Engineering Institute in July 1986
specializing in petroleum refinery, and then obtained a master degree from
East China University of Science and Technology specializing in chemical
engineering in December 2000. He is a professor level senior engineer. Mr.
Zhang served as Vice-president of Shanghai Gaoqiao Petrochemical Company under
China Petrochemical Corporation from April 1999 to February 2000. From
February to September in 2000, he was Vice-president of Shanghai Gaoqiao
branch company under Sinopec Corp. From September 2000 to June 2003, he was
the President of Sinopec Shanghai Gaogiao Company. Mr. Zhang has been Director
of Sinopec Operation and Management Department since November 2003. Mr. Zhang
was appointed as Vice President of Sinopec Corp. in April 2003. He was
appointed as Senior Vice President of Sinopec Corp. in March 2005.

         Cai Xiyou, 43, is a Vice President of Sinopec Corp. Mr. Cai graduated
from Fushun Petroleum Institute in August 1982 specializing in petroleum
refinery automation, and then obtained an MBA degree from China Industry and
Science Dalian Training Center in October 1990. He is a senior economist. From
June 1995 to May 1996, Mr. Cai was Vice-president of Jinzhou Petrochemical
Company under China Petrochemical Corporation before the industry
reorganization. From May 1996 to December 1998, he was Managing Vice-president
of Dalian Western Pacific Petrochemical Limited Company. From December 1998 to
June 2001, he acted as Vice-president of Sales Company under Sinopec Corp.;
and from June to December in 2001, he acted as Managing Vice-president of
Sales Company under Sinopec Corp. He has been Director and President of China
International United Petroleum & Chemicals Company Limited since December
2001. Mr. Cai was appointed as Vice President of Sinopec Corp. in April 2003.

         Li Chunguang, 49, is a Vice President of Sinopec Corp. Mr. Li
graduated from Heilongjiang Business Institute in January 1982 specializing in
petroleum storage and transportation. He is a senior engineer. Mr. Li acted as
Vice-president of Sales Company under Sinopec Corp. from October 1995 to June
2001. From June 2001 to December 2001, he was President of Sinopec Sales
Company Limited, and has been Director of Marketing and Distribution
Department of Sinopec Corp. since December 2001. In April 2002, he was elected
as Chairman and President of Sinopec Sales Company Limited. Mr. Li was
appointed as Vice President of Sinopec Corp. in April 2003.

         Chen Ge, 43, is secretary to the board of directors of Sinopec Corp.
Mr. Chen graduated from Daqing Petroleum Institute in July 1983 specializing
in petroleum refinery, and then obtained an MBA degree from Dalian University
of Science and Technology in July 1996. He is a senior economist. From July
1983 to February 2000, he worked in Beijing Yanshan Petrochemical Company.
From February 2000 to December 2001, he was a Deputy Director of Sinopec
Corp.'s Secretariat to the board of directors. Mr. Chen has been the Director
of Sinopec Corp.'s Secretariat to the board of directors since December 2001.
Mr. Chen was appointed as the secretary to the board of directors since April
2003.

         B.   COMPENSATION

Salaries of Directors, Supervisors and Members of the Senior Management

         Our directors and supervisors who hold working posts with us and
other senior management members receive their remuneration in the form of
basic salary and performance rewards. We have adopted initiative policies
approved by the first extraordinary shareholders' meeting on September 7, 2000
including the performance evaluation and remunerations incentive scheme for
the senior management, the share appreciation rights scheme, and the
conditions for the implementation of the initial granting of share
appreciation rights scheme.

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<PAGE>

         During 2004, directors in office (excluding directors and independent
non-executive directors who do not hold any working post with us), supervisors
(excluding independent supervisors) and other senior management officers were
paid RMB 5,777,234 in total as annual remuneration. The three highest paid
directors and senior management officers respectively received RMB 847,834 and
RMB 1,009,620 remuneration in total. The total annual director fees for our
independent non-executive directors and independent supervisors were RMB
141,000. Directors Mr. Liu Genyuan, Mr. Liu Kegu and Mr. Fan Yifei (and Mr. Gao
Jian, who replaced Mr. Liu Kegu as director as of April 30, 2004) do not hold
any working post with us, and accordingly are not paid any remuneration by us.

         During 2004, among our directors (excluding directors and independent
non-executive directors who do not hold any working post with us), supervisors
(excluding independent supervisors) and other senior management officers, four
of them received annual remuneration for an amount above RMB 300,000, 18 of
them received annual remuneration between RMB 200,000 and RMB 300,000.

         We do not have any service contract with any director that provides
for benefits upon termination of service.

         C.   BOARD PRACTICE

         In accordance with the Rules and Procedures for the Board of
Directors' Meeting that was adopted as an appendix to our articles of
association at the extraordinary shareholders' meeting on April 22, 2003 and
amended at the Annual General Meeting of Shareholders for the year 2003 on May
18, 2004, we have established three special committees, namely, an audit
committee, a strategy committee and a remuneration and evaluation committee.
The majority of the members of these special committees are independent
directors. In addition, the audit committee shall have at least one independent
director who is a financial expert.

         The main responsibilities of the audit committee include:

     o    to propose the appointment or replacement of the external auditor;

     o    to oversee the internal auditing system and its implementation;

     o    to coordinate the communication between the internal auditing
          department and the external auditor;

     o    to examine and approve financial information and it disclosure; and

     o    to examine the internal control system.

         The main responsibilities of the strategy committee are to conduct
research and put forward proposals on the long-term development strategy and
significant investments.

         The main responsibilities of the remuneration and evaluation
committee include:

     o    to research on evaluation criteria for directors and the president,
          to conduct their evaluations and make necessary suggestions; and

     o    to research on and review the policies and proposals in respect of
          the remuneration of directors, supervisors, president,
          vice-president, Chief Financial Officer and secretary of the board
          of directors.

         The members of audit committee are Chen Qingtai, Shi Wanpeng, Zhang
Youcai, Ho Tsu Kwok Charles and Cao Yaofeng. The members of strategy committee
are Wang Jiming, Shi Wanpeng, Ho Tsu Kwok Charles, Mou Shuling, Zhang Jiaren,
Liu Kegu (until April 2005), Cao Xianghong and Fan Yifei. The members of
remuneration and evaluation committee are Shi Wanpeng, Chen Qingtai, Zhang
Youcai, Mou Shuling and Liu Genyuan.

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<PAGE>

         D.   EMPLOYEES

         As of December 31, 2002, 2003 and 2004, we had approximately 418,871,
400,513 and 389,451 employees. The following table sets forth the number of
our employees by our business segments, their scope of work and their
education as of December 31, 2004.

<TABLE>
<CAPTION>

                                                                                Percentage of Total
     By Segment                                  Number of Employees            Number of Employees (%)
                                                 -------------------            -----------------------

<S>                                                         <C>                            <C>
     Exploration and Production ........                    143,846                        36.9
     Refining ..........................                     80,344                        20.6
     Marketing and Distribution ........                     70,516                        18.1
     Chemicals .........................                     89,908                        23.1
     Corporate and Others ..............                      4,837                         1.3
     Total   ...........................                    389,451                         100

                                                                                Percentage of Total
       By Employee's Scope of Work               Number of Employees            Number of Employees (%)
                                                 -------------------            -----------------------

Production..............................                    187,126                        48.0
Sales...................................                     69,535                        17.9
Technical...............................                     45,146                        11.6
Finance.................................                     10,012                         2.6
Administration..........................                     32,448                         8.3
Others..................................                     45,184                        11.6
Total    ...............................                    389,451                         100

                                                                                Percentage of Total
              By Education                       Number of Employees            Number of Employees (%)
                                                 -------------------            -----------------------

Master's degree and above...............                      3,317                         0.9
University .............................                     47,688                        12.2
Tertiary education......................                     70,420                        18.1
Technical/polytechnic school............                     46,321                        11.9
Secondary, technical/polytechnic school                     221,705                        56.9
or below................................
Total    ...............................                    389,451                         100

</TABLE>

         We have trade unions that protect employee rights, organize
educational programs, assist in the fulfillment of economic objectives,
encourage employee participation in management decisions, and assist in
mediating disputes between us and individual employees. We have not been
subject to any strikes or other labor disturbances that have interfered with
our operation, and we believe that our relations with our employees are good.

         The total remuneration of our employees includes salary, performance
bonuses and allowances. Employees also receive certain subsidies in housing,
health services, education and other miscellaneous items.

         As at December 31, 2004, we had a total of 111,764 retired employees,
and all of them have participated in basic pension schemes administered by
provincial governments. Details of our employee's retirement scheme are set
out in Note 30 to our consolidated financial statements included elsewhere in
this annual report.

         We have planned to reduce the number of employees by 100,000 persons
by means of retirement, voluntary resignation and/or redundancy within the
period of 5 years from 2001 to 2005, so as to enhance our efficiency and
operating profit. The aggregate employee reduction in the four years ended
December 31, 2004 amounted to 119,000 persons. In 2004, we recorded employee
reduction expenses of RMB 919 million relating to the reduction of
approximately 24,000 employees.

         E.   SHARE OWNERSHIP

         Our directors, supervisors and senior officers do not have share
ownership in us.

                                      67
<PAGE>

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

         A.   MAJOR SHAREHOLDERS

         The following table sets forth information regarding our major
shareholders as of June 17, 2005.

                                          Number of         Percentage of
                                        Shares Owned          Ownership
Shareholder                             (in millions)           (%)
-----------                             -------------       ------------
Sinopec Group Company.................       58,886             67.92


         As of June 15, 2005, we had 67,121,951,000 state-owned shares,
16,780,488,000 H shares and 2,800,000,000 A shares outstanding. As of June 10,
2005, 1,829,572,600 H shares were registered in the name of a nominee of
Citibank, N.A., the depositary under our ADS deposit agreement. Citibank, N.A.
has advised us that, as of June 10, 2005, 18,295,726 ADSs, representing
1,829,572,600 H shares, were held of record by Cede & Co. and 61 other
registered shareholders domiciled in and outside of the United States. We have
no further information as to common shares held, or beneficially owned, by
U.S. persons.

         B.   RELATED PARTY TRANSACTIONS

         Sinopec Group Company owns 67.92% of our outstanding equity as of
June 17, 2005. Sinopec Group Company will be able to exercise all the rights
of a controlling shareholder, including the election of directors and voting
in respect of amendments to our articles of association. Sinopec Group
Company, as our controlling shareholder, will be subject to certain minority
shareholder protection provisions under our articles of association.

         We have engaged from time to time and will continue to engage in a
variety of transactions with Sinopec Group Company, which provide a number of
services to us, including ancillary supply, transport, educational and
community services. The nature of our transactions with Sinopec Group Company
are governed by a number of service and other contracts between Sinopec Group
Company and us. A discussion of these agreements and arrangements is set forth
under the heading "Item 7 - Major Shareholders and Related Party
Transactions-Related Party Transactions" in our annual report on Form 20-F
filed with the Securities and Exchange Commission on April 17, 2001.

         At the third meeting of our Second Session of the Board of Directors,
the Board approved the Proposal Regarding the New Lease of Land Use Rights
from Sinopec Group Company, and approved the lease of the land use rights by
us of an area of 51.71 million square meters from Sinopec Group Company. The
parties entered into an Agreement on Lease of Land Use Rights in August 2003.
The amount of rent under the lease agreement incurred in this reporting period
was approximately RMB 300 million.

         The proposals of the acquisition of petrochemical assets, catalyst
assets and petrol station assets from Sinopec Group and disposal of downhole
operation assets were approved by our shareholders at the extraordinary
general meeting held on December 21, 2004. The total consideration payable for
these acquisitions was RMB 5.3 billion (US$0.6 billion) and the consideration
receivable for the disposal was RMB 1.7 billion (US$0.2 billion), resulting in
a net cash consideration of RMB 3.6 billion (US$0.4 billion) payable to
Sinopec Group Company.

         Please also see Note 29 to our consolidated financial statements
included elsewhere in this annual report.

         C.   INTERESTS OF EXPERTS AND COUNSEL

         Not applicable.

                                      68
<PAGE>

ITEM 8.  FINANCIAL INFORMATION

         A.   CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

         See F-pages following Item 19.

Legal Proceedings

         We are involved in certain judicial and arbitral proceedings before
Chinese courts or arbitral bodies concerning matters arising in connection
with the conduct of our businesses. We believe, based on currently available
information, that the results of such proceedings, in the aggregate, will not
have a material adverse effect on our financial condition or results of
operations.

Dividend Distribution Policy

         Our board of directors will determine the payment of dividends, if
any, with respect to our shares on a per share basis. Any final dividend for a
financial year shall be subject to shareholders' approval. The board may
declare interim and special dividends at any time under general authorization
by a shareholders' ordinary resolution. A decision to declare or to pay any
dividends in the future, and the amount of any dividends, will depend on our
results of operations, cash flows, financial condition, the payment by our
subsidiaries of cash dividends to us, future prospects and other factors which
our directors may determine are important.

         For holders of our H shares, cash dividend payments, if any, shall be
declared by our board of directors in Renminbi and paid in HK dollars. The
depositary will convert the HK dollar dividend payments and distribute them to
holders of ADSs in US dollars, less expenses of conversion.

         In addition to cash, dividends may be distributed in the form of
shares. Any distribution of shares, however, must be approved by special
resolution of the shareholders. Dividends in the form of shares will be
distributed to the depositary and, except as otherwise described in the
Deposit Agreement, will be distributed by the depositary in the form of
additional ADSs, to holders of ADSs.

         Dividends may be paid only out of our distributable profits (less
allocations to the statutory funds which generally range from 15% to 20% of
our net income determined in accordance with PRC GAAP) and may be subject to
PRC withholding tax. Our articles of association limit our distributable
profits to the lower of the amount determined in accordance with PRC GAAP and
IFRS. Subject to the above, we currently expect that we will distribute as
dividends up to 40% of our distributable profits.

         Our shareholders' meeting has approved a final dividend of RMB 0.12
per ordinary share for the year ended December 31, 2004, which is equivalent
to RMB 12.0 (US$1.45) per ADS. After deducting the interim dividends
distribution of RMB 0.04 per ordinary share, the year end dividend is RMB 0.08
per ordinary share, which is equivalent to RMB 8.0 (US$0.97) per ADS.

         B.   SIGNIFICANT CHANGES

         None.

ITEM 9.  THE OFFER AND LISTING

         A.   OFFER AND LISTING DETAILS

         Not applicable, except for Item 9A (4) and Item 9C.

         Our H Shares have been listed on the Hong Kong Stock Exchange (Code:
0386), and our ADSs, each representing 100 H Shares, have been listed on the
New York Stock Exchange and the London Stock Exchange under the symbol "SNP",
since we completed our initial public offering on October 19, 2000. Prior to
that time, there was no public market for our H Shares. The Hong Kong Stock
Exchange is the principal non-U.S. trading market for our H Shares. Our
publicly traded domestic shares, or A shares, are listed on the Stock Exchange
of Shanghai since August 8, 2001 (Code: 600028).

                                      69
<PAGE>

         The following table sets forth, for the periods indicated, the high
and low closing prices per H Share, as reported on the Stock Exchange of Hong
Kong, per ADS, as reported on the New York Stock Exchange and per A share, as
reported on the Stock Exchange of Shanghai.

<TABLE>
<CAPTION>

                                  The Stock Exchange of      The New York Stock       The Shanghai Stock
                                         Hong Kong                Exchange                  Exchange
                                         ---------                --------                  --------

<S>          <C>                   <C>            <C>         <C>         <C>            <C>           <C>
Period                             High          Low           High        Low           High          Low
       Past 6 months              (HK dollar per H share)     (US dollar per ADS)       (RMB per A share)
2005          May                    3.150           2.800      40.04       37.04          4.18          3.47
              April                  3.225           2.975      41.08       38.32          4.38          4.09
              March                  3.525           3.125      43.75       39.56          4.51          4.09
              February               3.575           3.075      45.42       39.86          4.52          4.01
              January                 3.20            2.95      40.62       38.26          4.22          3.89
2004          December                3.30           3.075      42.27       39.59          4.48          4.30


       Quarterly Data
2005          First Quarter          3.575           2.950      45.42       38.26          4.52          3.89
2004          Fourth Quarter         3.325           2.925      42.31       37.95          4.67          4.30
              Third Quarter          3.175            2.75      41.05       35.35          5.13          4.26
              Second Quarter         3.125           2.475      40.15       32.08          5.55          4.56
              First Quarter           3.85            2.75      49.90       36.05          5.77          4.82
2003          Fourth Quarter         3.475            2.15      44.41       27.87          5.06          3.44
              Third Quarter          2.475            1.81      32.12       23.85          3.90          3.37
              Second Quarter          1.88            1.45      24.50       18.34          4.04          3.48
              First Quarter           1.56            1.36      19.42       17.30          3.60          2.94

2002          Fourth Quarter          1.38            1.17      17.49       14.60          3.40          3.01
              Third Quarter           1.44            1.13      18.05       14.57          3.85          3.44
              Second Quarter          1.42            1.25      18.33       15.85          3.90          3.10
              First Quarter           1.30            1.05      16.68       13.50          3.40          3.01

        Annual Data
2004                                  3.85           2.475      49.90       32.08          5.77          4.26
2003                                 3.475            1.24      44.41       17.30          5.06          2.94
2002                                  1.44            1.05      18.33       13.50          3.90          3.01
2001                                  1.65            1.00      21.00       12.80          4.36          3.29
2000          (October 19             1.70            1.19      21.44       14.88
              to December 31)

--------------
Source: Bloomberg

</TABLE>

ITEM 10. ADDITIONAL INFORMATION

         A.   SHARE CAPITAL

         Not applicable.

                                      70
<PAGE>

         B.   MEMORANDUM AND ARTICLES OF ASSOCIATION

         The following is a summary of certain provisions of our articles of
association, as amended, the Company Law of the PRC (1993) and certain other
applicable laws and regulations of the PRC. You and your advisors should refer
to the text of our articles of association, as amended, and to the texts of
applicable laws and regulations for further information.

Objects and Purposes

         We are a joint stock limited company established in accordance with
the Company Law and certain other laws and regulations of the PRC. We are
registered with the PRC State Administration of Industry and Commerce with
business license number 1000001003298. Article 12 of our articles of
association provides that our scope of businesses includes, among other
things, exploration, development and sales of petroleum and natural gas;
pipeline transportation of petroleum and natural gas; petroleum refining;
production, sales and storage of refined petroleum products, petrochemical
products, chemical fiber products and other chemical products; wholesale,
retailing and storage of refined petroleum products and other petroleum
products; operation of convenience stores; power generation; manufacturing and
installation of machinery; purchase and sales of raw materials, charcoal,
equipment and its components; research, development, application of technology
and information; import and export; and provision of technology services and
labor services.

Directors

         Our directors shall be elected at our shareholders' general meeting.
Cumulative voting shall be adopted for the election of directors if a
controlling shareholder controls 30% or more of our shares. Details of the
cumulative voting mechanism are set forth in Article 57 of the Rules and
Procedures for the Shareholders' General Meetings that is an appendix to, and
forms an integral part of, our articles of association. Our directors shall be
elected for a term of three years and may serve consecutive terms upon
re-election, except that independent directors may only serve a maximum of two
terms. Our directors are not required to hold any shares in us, and there is
no age limit requirement for the retirement or non-retirement of our
directors.

         Where a director is materially interested, directly or indirectly, in
a contract, transaction or arrangement (including any proposed contract,
transaction or arrangement) with us, he or she shall declare the nature and
extent of his or her interests to the board of directors at the earliest
opportunity, whether or not such contract, transaction or arrangement is
otherwise subject to the approval of the board. A director shall not vote, and
shall not be counted in the quorum of the meeting, on any resolution
concerning any contract, transaction or arrangement where the director owns
material rights or interests therein. A director is deemed to be interested in
a contract, transaction or arrangement in which his associate (as defined by
the Listing Rule of the Hong Kong Stock Exchange) is interested.

         Unless the interested director discloses his interests to the board
and the contract, transaction or arrangement in which the director is
materially interested is approved by the board at a meeting in which the
director neither votes nor is not counted in the quorum, such contract,
transaction or arrangement shall be voidable by us except with respect to a
bona fide party thereto who does not have notice of the director's interests.

         We are prohibited from making loans or providing guarantees to our
directors and their associates except where such loan or guarantee is to meet
expenditure requirement incurred or to be incurred by the director for the
purposes of the company or for the purpose of enabling the director to perform
his or her duties properly.

         The board of directors shall examine and approve the amount of the
long-term loans for the current year in accordance with the annual investment
plan as approved by the shareholders' general meeting. The chairman of the
board may make adjustments of not more than 10% of the total amount of the
long-term loans for the current year as approved by the board of directors.
The board of directors shall also approve the total amount of the working
capital loans for the current year. Within the total amount of the long-term
or working capital loans as approved by the board of directors, the chairman
of the board is authorized to approve and sign on behalf of the company any
such loan contract with loan amount over RMB 1.0 billion, and the president of
the company is authorized to approve and sign on behalf of the company any
such loan contract with loan amount not exceeding RMB 1.0 billion.

                                      71
<PAGE>

         Matters relating to the remuneration and liability insurance of our
directors shall be determined by the shareholders' general meeting.

Dividends

         A distribution of final dividends for any financial year is subject
to shareholders' approval. Except otherwise decided by Shareholders' meeting,
the board of directors may make decision on the distribution of interim
dividends. Except otherwise provided by law and regulation, the sum of interim
dividends shall not exceed 50 percents of the distributive profit as set out
in the table for semi-year profit. Dividends may be distributed in the form of
cash or shares. A distribution of shares, however, must be approved by special
resolution of the shareholders.

         Dividends may only be distributed after allowance has been made for:

     o    recovery of losses, if any;
     o    allocations to the statutory common reserve fund;
     o    allocations to the statutory common welfare fund; and
     o    allocations to a discretionary common reserve fund if approved by
          the shareholders.

         The minimum and maximum aggregate allocations to the statutory funds
are 15% and 20%, respectively, of our net income determined in accordance with
PRC accounting rules.

         The articles of association require us to appoint on behalf of the
holders of H shares a receiving agent which is registered as a trust
corporation under the Trustee Ordinance of Hong Kong to receive dividends
declared by us in respect of the H shares on behalf of such shareholders. The
articles of association require that cash dividends in respect of H shares be
declared in Renminbi and paid by us in HK dollars. The depositary of our ADSs
will convert such proceeds into U.S. dollars and will remit such converted
proceeds to our holders of ADSs. If we record no profit for the year, we may
not normally distribute dividends for the year.

         Dividend payments may be subject to PRC withholding tax.

Voting Rights and Shareholders' Meetings

         Our board of directors shall convene a shareholders' annual general
meeting once every year and within six months from the end of the preceding
financial year. Our board shall convene an extraordinary general meeting
within two months of the occurrence of any one of the following events:

     o    where the number of directors is less than the number stipulated in
          the PRC Company Law or two-thirds of the number specified in our
          articles of association;
     o    where our unrecovered losses reach one-third of the total amount of
          our share capital;
     o    where shareholder(s) holding 10% or more of our issued and
          outstanding voting shares request(s) in writing the convening of an
          extraordinary general meeting;
     o    whenever our board deems necessary or our board of supervisors so
          requests; or
     o    circumstances provided in the articles of association.

         Meetings of a special class of shareholders must be called in certain
enumerated situations when the rights of the holders of such class of shares
may be modified or adversely affected as discussed below. Resolutions proposed
by the board of supervisors or shareholder(s) holding 5% or more of the total
number of voting shares shall be included in the agenda for the relevant
annual general meeting if they are matters which fall within the scope of the
functions and powers of shareholders in general meeting.

         All shareholders' meetings must be convened by our board by written
notice given to shareholders not less than 45 days before the meeting. Based
on the written replies received by us 20 days before a shareholders' meeting,
we shall calculate the number of voting shares represented by shareholders who
have indicated that they intend to attend the meeting. Where the number of
voting shares represented by those shareholders amount to more than one-half
of our total voting shares, we may convene the shareholders' general meeting
(regardless of the number of shareholders who actually attend). Otherwise, we
shall, within five days, inform the shareholders again of the motions to be
considered and the date and venue of the meeting by way of public
announcement. After the announcement is made, the shareholders' meeting may be
convened. The accidental


                                      72
<PAGE>

omission by us to give notice of a meeting to, or the non-receipt of notice of
a meeting by, a shareholder will not invalidate the proceedings at that
shareholders' meeting.

         Shareholders at meetings have the power, among other things, to
approve or reject our profit distribution plans, annual budget, financial
statements, increase or decrease in share capital, issuance of debentures,
merger or liquidation and any amendment to our articles of association. In
addition, the rights of a class of shareholders may not be modified or
abrogated, unless approved by a special resolution of all shareholders at a
general shareholders' meeting and by a special resolution of shareholders of
that class of shares at a separate meeting. Our articles of association
enumerate, without limitation, certain amendments which would be deemed to be
a modification or abrogation of the rights of a class of shareholders,
including increasing or decreasing the number of shares of a class
disproportionate to increases or decreases of other classes of shares,
removing or reducing rights to receive dividends in a particular currency or
creating shares with voting or equity rights superior to shares of such class.

         Cumulative voting is adopted for the election of directors. For all
other matters, each share is entitled to one vote on all such matters
submitted to a vote of our shareholders at all shareholders' meetings, except
for meetings of a special class of shareholders where only holders of shares
of the affected class are entitled to vote on the basis of one vote per share
of the affected class.

         Shareholders are entitled to attend and vote at meetings either in
person or by proxy. Proxies must be in writing and deposited at our legal
address, or such other place as is specified in the meeting notice, not less
than 24 hours before the time for holding the meeting at which the proxy
proposes to vote or the time appointed for the passing of the relevant
resolution(s). When the instrument appointing a proxy is executed by the
shareholder's attorney-in-fact, such proxy when deposited must be accompanied
by a notary certified copy of the relevant power of attorney or other
authority under which the proxy was executed.

         Except for those actions discussed below which require supermajority
votes ("special resolutions"), resolutions of the shareholders are passed by a
simple majority of the voting shares held by shareholders who are present in
person or by proxy. Special resolutions must be passed by or more than
two-thirds of the voting rights represented held by shareholders who are
present in person or by proxy.

         The following decisions must be adopted by special resolution:

     o    an increase or reduction of our share capital or the issue of
          shares, including stock distributions, of any class, warrants and
          other similar securities;
     o    issuance of debentures;
     o    our division, merger, dissolution and liquidation; (Shareholders who
          object to a proposed division or merger are entitled to demand that
          either we or the shareholders who approved the merger purchase their
          shares at a fair price.)
     o    repurchase of shares;
     o    amendments to our articles of association; and
     o    any other matters considered by the shareholders in a general
          meeting and which they have resolved by way of an ordinary
          resolution to be of a nature which may have a material impact on us
          and should be adopted by special resolution.

         All other actions taken by the shareholders, including the
appointment and removal of our directors and supervisors and the declaration
of cash dividend payments, will be decided by an ordinary resolution of the
shareholders. The listing agreement between us and the Hong Kong Stock
Exchange (the "Listing Agreement") provided that we may not permit amendments
to certain sections of the articles of association which have been mandated by
the Hong Kong Stock Exchange. These sections include provisions relating to:

     o    varying the rights of existing classes of shares;
     o    voting rights;
     o    our power to purchase our own shares;
     o    rights of minority shareholders; and
     o    procedure on liquidation.

         In addition, certain amendments to the articles of association
require the approval and consent of the relevant PRC authorities.

                                      73
<PAGE>

         Any shareholder resolution which is in violation of any laws or
regulations of the PRC or the articles of association will be null and void.

Liquidation Rights

         In the event of our liquidation, the H shares will rank pari passu
with the domestic ordinary shares, and payment of debts out of our remaining
assets shall be made in the order of priority prescribed by applicable laws
and regulations or, if no such standards exist, in accordance with such
procedure as the liquidation committee which has been appointed either by us
or the People's Court of the PRC may consider to be fair and reasonable. After
payment of debts, we shall distribute the remaining property to shareholders
according to the class and proportion of their shareholders.

Further Capital Call

         Shareholders are not liable to make any further contribution to the
share capital other than according to the terms, which were agreed by the
subscriber of the relevant shares at the time of subscription.

Increases in Share Capital and Preemptive Rights

         The articles of association require the approval by a special
resolution of the shareholders and by special resolution of holders of
domestic ordinary shares and H shares at separate shareholder class meetings
be obtained prior to authorizing, allotting, issuing or granting shares,
securities convertible into shares or options, warrants or similar rights to
subscribe for any shares or such convertible securities. No such approval is
required if, but only to the extent that:

     o    we issue domestic ordinary shares and/or H shares, either separately
          or concurrently, in numbers not exceeding 20% of the number of
          domestic ordinary shares and H shares then in issue, respectively,
          in any 12-month period, as approved by a special resolution of the
          shareholders; or
     o    if our plans for issuing domestic ordinary shares and H shares upon
          its establishment are implemented within fifteen months of the date
          of approval by the China Securities Regulatory Commission.

         New issues of shares must also be approved by the relevant PRC
authorities.

Reduction of Share Capital and Purchase by Us of Our Shares and General
Mandate to Repurchase Shares

         We may reduce our registered share capital only upon obtaining the
approval of the shareholders by a special resolution and, in certain
circumstances, of relevant PRC authorities. The number of H shares, which may
be purchased is subject to the Hong Kong Takeovers and Share Repurchase Codes.

Restrictions on Large or Controlling Shareholders

         Our articles of association provide that, in addition to any
obligation imposed by laws and administration regulations or required by the
listing rules of the stock exchanges on which our H shares are listed, a
controlling shareholder shall not exercise his voting rights in a manner
prejudicial to the interests of the shareholders generally or of some part of
the shareholders:

     o    to relieve a director or supervisor from his or her duty to act
          honestly in our best interests;

     o    to approve the expropriation by a director or supervisor (for his or
          her own benefit or for the benefit of another person) of our assets
          in any way, including, without limitation, opportunities which may
          benefit us; or

     o    to approve the expropriation by a director or supervisor (for his or
          her own benefit or for the benefit of another person) of the
          individual rights of other shareholders, including, without
          limitation, rights to distributions and voting rights (save
          according to a restructuring of our company which has been submitted
          for approval by the shareholders in a general meeting in accordance
          with our articles of association).

                                      74
<PAGE>

         A controlling shareholder, however, will not be precluded by our
articles of association or any laws and administrative regulations or the
listing rules of the stock exchanges on which our H shares are listed from
voting on these matters.

         When a controlling shareholder intends to put forward a new motion on
profit distribution at an annual general meeting, the controlling shareholder
shall, at not less than ten days before the date of the annual general
meeting, submit the motion to the board of directors to enable it to make an
announcement, failing which the shareholder is not entitled to put forward the
motion at the annual general meeting.

         A controlling shareholder is defined by our articles of association
as any person who acting alone or in concert with others:

     o    is in a position to elect more than one-half of the board of
          directors;
     o    has the power to exercise, or to control the exercise of, 30% or
          more of our voting rights;
     o    holds 30% or more of our issued and outstanding shares; or
     o    has de facto control of us in any other way.

         As of the date of this annual report, Sinopec Group Company is and
will be our only controlling shareholder.

Disclosure

         The Listing Agreement imposes a requirement on us to keep the Hong
Kong Stock Exchange, our shareholders and other holders of our listed
securities informed as soon as reasonably practicable of any information
relating to us and our subsidiaries, including information on any major new
developments which are not public knowledge, which:

     o    is necessary to enable them and the public to appraise the position
          of us and our subsidiaries;
     o    is necessary to avoid the establishment of a false market in its
          securities; and
     o    might be reasonably expected materially to affect market activity in
          and the price of its securities.

There are also requirements under the Listing Rules for us to obtain prior
shareholders' approval and/or to disclose to shareholders details of certain
acquisitions or disposals of assets and other transactions (including
transactions with controlling shareholders).

Sources of Shareholders' Rights

         The PRC's legal system is based on written statutes and is a system
in which decided legal cases have little precedent value. The PRC's legal
system is similar to civil law systems in this regard. In 1979, the PRC began
the process of developing its legal system by undertaking to promulgate a
comprehensive system of laws. In December 1993, the Standing Committee of the
8th National People's Congress adopted the PRC Company Law. Although the PRC
Company Law is expected to serve as the core of a body of regulatory measures,
which will impose a uniform standard of corporate behavior on companies and
their directors and shareholders, only a limited portion of this body of
regulatory measures has so far been promulgated.

         Currently, the primary sources of shareholder rights are our articles
of association, as amended, the PRC Company Law and the Listing Rules of the
Hong Kong Stock Exchange, which, among other things, impose certain standards
of conduct, fairness and disclosure on us, our directors and our controlling
shareholder, i.e., Sinopec Group Company. To facilitate the offering and
listing of shares of PRC companies overseas, and to regulate the behavior of
companies whose shares are listed overseas, the State Council Securities
Committee and the State Commission for Restructuring the Economic System
issued on August 27, 1994 the Mandatory Provisions for articles of association
of Company Listing Overseas (the "Mandatory Provisions"). These Mandatory
Provisions become entrenched in that, once they are incorporated into the
articles of association of a PRC company, any amendment to those provisions
will only become effective after approval by the State-owned Assets
Supervision and Administration Commission of the State Council. The Listing
Rules require a number of additional provisions to the Mandatory Provisions to
be included in the articles of association of PRC companies listing H shares
on the Hong Kong Stock Exchange (the "Additional Provisions"). The Mandatory
Provisions and the Additional Provisions have been incorporated into our
articles of association.

                                      75
<PAGE>

         In addition, upon the listing of and for so long as the H shares are
listed on the Hong Kong Stock Exchange, we will be subject to those relevant
ordinances, rules and regulations applicable to companies listed on the Hong
Kong Stock Exchange, including the Listing Rules of the Hong Kong Stock
Exchange, the Securities (Disclosure of Interests) Ordinance (the "SDI
Ordinance"), the Securities (Insider Dealing) Ordinance and the Hong Kong
Codes on Takeovers and Mergers and Share Repurchases (the "Hong Kong Takeovers
and Repurchase Codes").

         Unless otherwise specified, all rights, obligations and protections
discussed below derive from our articles of association and/or the PRC Company
Law.

Enforceability of Shareholders' Rights

         There has not been any public disclosure in relation to the
enforcement by holders of H shares of their rights under constitutive
documents of joint stock limited companies or the PRC Company Law or in the
application or interpretation of the PRC or Hong Kong regulatory provisions
applicable to PRC joint stock limited companies.

         In most states of the United States, shareholders may sue a
corporation "derivatively". A derivative suit involves the commencement by a
shareholder of a corporate cause of action against persons (including
corporate officers, directors or controlling shareholders) who have allegedly
wronged the corporation, where the corporation itself has failed to enforce
such claim against such persons directly. Such action is brought based upon a
primary right of the corporation, but is asserted by a shareholder on behalf
of the corporation. Because the right to sue derivatively is not available
under PRC law, our shareholders may have to rely on other means to enforce the
rights of shareholders, such as through administrative proceedings.

         Our articles of association provide that all differences or claims:

     o    between a holder of H shares and us;
     o    between a holder of H shares and any of our directors, supervisors,
          general managers, deputy general managers or other senior officers;
          or
     o    between a holder of H shares and a holder of domestic ordinary
          shares, arising from any provision of our articles of association,
          any right or obligation conferred or imposed by the PRC Company Law
          or any other relevant law or administrative regulation which
          concerns our affairs

must, with certain exceptions, be referred to arbitration at either the China
International Economic and Trade Arbitration Commission in the PRC or the Hong
Kong International Arbitration Center. Our articles of association provide
that such arbitration will be final and conclusive. In June 1999, an
arrangement was made between the People's Courts of the PRC and the courts of
Hong Kong to mutually enforce arbitration rewards rendered in the PRC and Hong
Kong according to their respective laws. This new arrangement was approved by
the Supreme Court of the PRC and the Hong Kong Legislative Council and became
effective on February 1, 2000. We have provided an undertaking to the United
States Securities and Exchange Commission that, at such time, if any, as all
applicable laws and regulations of the PRC and (unless our H shares are no
longer listed on the Hong Kong Stock Exchange) all applicable regulations of
the Stock Exchange of Hong Kong Ltd. shall not prohibit, and to the extent
Section 14 under the United States Securities Act of 1933, as amended, so
requires, our board of directors shall propose an amendment to the articles of
association which would permit shareholders to adjudicate disputes arising
between our shareholders and us, our directors, supervisors or officers by
means of judicial proceedings.

         The holders of H shares will not be able to bring actions on the
basis of violations of the Listing Rules and must rely on the Hong Kong Stock
Exchange to enforce its rules. The SDI Ordinance establishes certain
obligations in relation to disclosure of shareholder interests in Hong Kong
listed companies, the violation of which is subject to prosecution by the
Securities and Futures Commission of Hong Kong. The Hong Kong Takeovers and
Repurchase Codes do not have the force of law and are only standards of
commercial conduct considered acceptable for takeover and merger transactions
and share repurchases in Hong Kong as established by the Securities and
Futures Commission and the securities and futures industry in Hong Kong.

         We have appointed our subsidiary in the U.S., SINOPEC-USA Co., Ltd.,
150 E. 52nd Street, 28th Floor, New York, NY 10022, USA, as our agent to
receive service of process with respect to any action brought against us in
certain courts in New York under the United States federal and New York
State's securities laws. However, as the PRC does not have treaties providing
for the reciprocal recognition and enforcement of

                                      76
<PAGE>

judgments of courts within the United States, the United Kingdom, Japan or most
other the Organization for Economic Cooperation and Development countries,
administrative actions brought by regulatory authorities, such as the
Commission, and other actions which result in foreign court judgments, could
(assuming such actions are not required by PRC law and the articles of
association to be arbitrated) only be enforced in the PRC on a reciprocal basis
or according to relevant international treaty to which China is a party if such
judgments or rulings do not violate the basic principles of the law of the PRC
or the sovereignty, security and public interest of the society of the PRC, as
determined by a People's Court of the PRC which has the jurisdiction for
recognition and enforcement of judgments. We have been advised by our PRC
counsel, Haiwen & Partners, that there is certain doubt as to the
enforceability in the PRC of actions to enforce judgments of United States
courts arising out of or based on the ownership of H shares or ADSs, including
judgments arising out of or based on the civil liability provisions of United
States federal or state securities laws.

Restrictions on Transferability and the Share Register

         According to PRC Company Law, our domestic ordinary shares held by
Sinopec Group Company may not be transferred within three years of our
establishment on February 25, 2000, except as permitted under the March 23,
2000 debt to equity swap agreement executed on March 23, 2000 between Sinopec
Group Company and our other shareholders, whereby Sinopec Group Company may
transfer our domestic ordinary shares to such other shareholders. H shares may
be traded only among investors who are not PRC persons, and may not be sold to
PRC investors. There are no restrictions on the ability of investors who are
not PRC residents to hold H shares.

         As provided in the articles of associations we may refuse to register
a transfer of H shares unless:

     o    any relevant transfer fee is paid;
     o    the instrument of transfer is only related to H shares listed in
          Hong Kong;
     o    the instrument of transfer is accompanied by the share certificates
          to which it relates, or such other evidence is given as may be
          reasonably necessary to show the right of the transferor to make the
          transfer;
     o    the stamp duty which is chargeable on the instrument of transfer has
          already been paid;
     o    if it is intended that the shares be transferred to joint owners,
          the maximum number of joint owners shall not be more than four (4);
          and
     o    the Company does not have any lien on the relevant shares.

         We are required to keep a register of our shareholders which shall be
comprised of various parts, including one part which is to be maintained in
Hong Kong in relation to H shares to be listed on the Hong Kong Stock
Exchange. Shareholders have the right to inspect and, for a nominal charge, to
copy the share register. No transfers of ordinary shares shall be recorded in
our share register within 30 days prior to the date of a shareholders' general
meeting or within 5 days prior to the record date established for the purpose
of distributing a dividend.

         We have appointed HKSCC Registrars Limited to act as the registrar of
our H shares. This registrar maintains our register of holders of H shares at
our offices in Hong Kong and enters transfers of shares in such register upon
the presentation of the documents described above.

         C.   MATERIAL CONTRACTS

         We have not entered into any material contracts other than in the
ordinary course of business and other than those described in Item 4.
Information on the Company, Item 7. Major Shareholders and Related Party
Transactions - Related Party Transactions or elsewhere in this Form 20-F.

         D.   EXCHANGE CONTROLS

         The existing foreign exchange regulations have significantly reduced
government foreign exchange controls for transactions under the current
account, including trade and service related foreign exchange transactions and
payment of dividends. We may undertake current account foreign exchange
transactions without prior approval from the State Administration of Foreign
Exchange by producing commercial documents evidencing such transactions,
provided that they are processed through Chinese banks licensed to engage in
foreign exchange transactions. The PRC government has stated publicly that it
intends to make the Renminbi

                                      77
<PAGE>

freely convertible in the future. However, we cannot predict whether the PRC
government will continue its existing foreign exchange policy and when the PRC
government will allow free conversion of Renminbi to foreign currency.

         Foreign exchange transactions under the capital account, including
principal payments in respect of foreign currency-denominated obligations,
continue to be subject to significant foreign exchange controls and require
the approval of the State Administration of Foreign Exchange. These
limitations could affect our ability to obtain foreign exchange through debt
or equity financing, or to obtain foreign exchange for capital expenditures.

         Since 1994, the conversion of Renminbi into Hong Kong and United
States dollars has been based on rates set by the People's Bank of China,
which are set daily based on the previous day's PRC interbank foreign exchange
market rate and current exchange rates on the world financial markets.
Although the Renminbi to US dollar exchange rate has been relatively stable
since 1994, we cannot predict nor give any assurance of its future stability.
Fluctuations in exchange rates may adversely affect the value, translated or
converted into US dollars or Hong Kong dollars, of our net assets, earnings
and any declared dividends. In addition, there is speculation that the PRC
government may revalue the Renminbi against the US dollar, and we cannot give
any assurance that any future movements in the exchange rate of the Renminbi
against the US dollar and other foreign currencies will not adversely affect
our results of operations and financial condition. We do not currently hedge
exchange rate fluctuations between the Renminbi and the US dollar or other
currencies and currently have no plans to do so. For further information on
our foreign exchange risks, foreign exchange rates, our hedging activities and
our historical foreign currency requirements, see "Currencies Exchange Rates"
and "Item 11 -- Qualitative and Quantitative Disclosure about Market Risk --
Foreign Exchange Rate Risk."

         E.   TAXATION

PRC Taxation

         The following discussion addresses the principal PRC tax consequences
of investing in the H shares or ADSs.

         Taxation of Dividends

         Individual Investors

         According to the current PRC tax regulations, dividends paid by PRC
companies are ordinarily subject to a PRC withholding tax levied at a flat
rate of 10%. However, such withholding tax is not applicable with respect to
those PRC companies which have their shares listed on an overseas stock
exchange, such as H shares and ADSs, because of an exemption issued first in
1993 and then confirmed in 1994. The relevant tax authority has not collected
withholding tax on dividend payments on H shares or ADSs.

         In the event that the exemption is no longer available or is
withdrawn, a 10% tax may be withheld on dividends in accordance with the PRC
individual income tax law. Such withholding tax may be reduced under an
applicable treaty on the avoidance of double taxation.

         Foreign Enterprises

         According to the current PRC tax regulations, dividends paid by PRC
companies to foreign enterprises are ordinarily subject to a PRC withholding
tax levied at a flat rate of 10%. However, foreign enterprises with no
permanent establishment in China receiving dividends paid with respect to a
PRC company's H shares or ADSs have been temporarily exempted from the 10%
withholding tax. If such withholding tax becomes applicable in the future, the
rate could be reduced under an applicable treaty on the avoidance of double
taxation.

         Tax Treaties

         Holders resident in countries which have entered into avoidance of
double taxation treaties with the PRC may be entitled to a reduction of the
withholding tax imposed on the payment of dividends. The PRC currently has
avoidance of double taxation treaties with a number of other countries, which
include Australia, Canada, France, Germany, Japan, Malaysia, the Netherlands,
Singapore, the United Kingdom and the United States.

                                      78
<PAGE>

         Under a tax treaty between United States and China, China may tax
dividends paid by Sinopec Corp. to eligible US Holders up to a maximum of 10%
of the gross amount of such dividend. Under the tax treaty, an eligible US
Holder is a person who, by reason of domicile, residence, place of head
office, place of incorporation or any other criterion of similar nature is
liable to tax in the United States, subject to a detailed "treaty shopping"
provision.

         Taxation of Capital Gains

         A PRC tax regulation provides that gains realized upon the sale of
overseas shares by foreign enterprises and individuals are not subject to tax
on capital gains. However, the Provision for Implementing of the Individual
Income Tax Law of the PRC (the "Detailed Implementing Rules"), promulgated on
January 28, 1994, imposes income tax of 20% on gains derived from the sale of
equity shares by an individual. A notice issued in 1998 by the Ministry of
Finance and State Administration of Tax states that no capital gains tax will
be imposed on gains from the sale of shares by individuals from 1997. If such
tax exemption relief is no longer available, individual holders of H shares or
ADSs may be subject to a 10% capital gains tax unless such tax is reduced or
eliminated by an applicable double taxation treaty. As the Amendments and the
Detailed Implementing Rules only relate to individual income tax, the tax
exemption for foreign enterprises under the PRC tax regulation should still be
valid.

         PRC Stamp Tax Considerations

         Under the current PRC tax regulation, the PRC stamp tax is not
imposed on the transfer of H shares and ADSs of PRC companies publicly listed
outside China.

United States Federal Income Tax Considerations

         The following is a summary of United States federal income tax
considerations that are anticipated to be material for US Holders (as defined
below) who purchase H shares or ADSs. This summary is based upon existing
United States federal income tax law, which is subject to change, possibly
with retroactive effect. This summary does not discuss all aspects of United
States federal income taxation which may be important to particular investors
in light of their individual investment circumstances, such as investors
subject to special tax rules including: financial institutions, insurance
companies, broker-dealers, tax-exempt organizations, non-US Holders, investors
who own (directly, indirectly, or constructively) 10% or more of our voting
stock, investors that will hold H shares or ADSs as part of a straddle, hedge,
conversion, constructive sale or other integrated transaction for United
States federal income tax purposes, or US Holders that have a functional
currency other than the United States dollar, all of whom may be subject to
tax rules that differ significantly from those summarized below. In addition,
this summary does not discuss any foreign, state, local or alternative minimum
tax considerations. This summary only addresses investors that will hold their
H shares or ADSs as "capital assets" (generally, property held for investment)
under the United States Internal Revenue Code. Each prospective investor is
urged to consult its tax advisor regarding the United States federal, state,
local, and foreign income and other tax considerations of the purchase,
ownership, and disposition of H shares or ADSs.

         For purposes of this summary, a US Holder is a beneficial owner of H
shares or ADSs that is for United States federal income tax purposes:

     o    an individual who is a citizen or resident of the United States;

     o    a corporation created in or organized under the laws of, the United
          States or any State or political subdivision thereof;

     o    an estate the income of which is includible in gross income for
          United States federal income tax purposes regardless of its source;

     o    a trust the administration of which is subject to the primary
          supervision of a United States court and which has one or more
          United States persons who have the authority to control all
          substantial decisions of the trust; or

     o    a trust that was in existence on August 20, 1996, was treated as a
          United States person, for United States federal income tax purposes,
          on the previous day and elected to continue to be so treated.

                                      79
<PAGE>

         If a partnership (including any entity treated as a partnership for
United States federal income tax purposes) holds H shares or ADSs, the tax
treatment of a partner in such partnership will depend upon the status of the
partner and the activities of the partnership. Partners in a partnership
holding our H shares or ADSs are urged to consult their tax advisors as to the
particular United States federal income tax consequences applicable to them.

         A beneficial owner of the H shares or ADSs that is not a US Holder is
referred to herein as a "Non-US Holder."

         A foreign corporation will be treated as a "passive foreign
investment company" (a "PFIC"), for United States federal income tax purposes,
if 75% or more of its gross income consists of certain types of "passive"
income or 50% or more of its assets are passive. Sinopec Corp. presently
believes that it is not a PFIC and does not anticipate becoming a PFIC. This
is, however, a factual determination made on an annual basis and is subject to
change. The following discussion is based on the belief that Sinopec Corp.
will not be classified as a PFIC for United States federal income tax
purposes. See the discussion below under the heading "PFIC Considerations" for
a brief summary of the PFIC rules.

         US Holders

         For United States federal income tax purposes, a US Holder of an ADS
will be treated as the owner of the proportionate interest of the H shares
held by the depositary that is represented by an ADS and evidenced by such
ADS. Accordingly, no gain or loss will be recognized upon the exchange of an
ADS for the holder's proportionate interest in the H shares. A US Holder's tax
basis in the withdrawn H shares will be the same as the tax basis in the ADS
surrendered therefor, and the holding period in the withdrawn H shares will
include the period during which the holder held the surrendered ADS.

         Dividends

         Any cash distributions paid by Sinopec Corp. out of earnings and
profits, as determined under United States federal income tax principles, will
be subject to tax as dividend income and will be includible in the gross
income of a US Holder upon receipt. A non-corporate recipient of dividend
income will generally be subject to tax on dividend income from a "qualified
foreign corporation" at a maximum U.S. federal tax rate of 15% rather than the
marginal tax rates generally applicable to ordinary income so long as certain
holding period requirements are met. A non-U.S. corporation (other than a
passive foreign investment company) generally will be considered to be a
qualified foreign corporation (i) if it is eligible for the benefits of a
comprehensive tax treaty with the United States which the Secretary of
Treasury of the United States determines is satisfactory for purposes of this
provision and which includes an exchange of information program or (ii) with
respect to any dividend it pays on stock which is readily tradable on an
established securities market in the United States. There is currently a tax
treaty in effect between the United States and the People's Republic of China
which the Secretary of Treasury of the United States determined is
satisfactory for these purposes. Additionally, our ADSs trade on the New York
Stock Exchange, an established securities market in the United States. Cash
distributions paid by Sinopec Corp. in excess of its earnings and profits will
be treated as a tax-free return of capital to the extent of the US Holder's
adjusted tax basis in its shares or ADSs, and after that as gain from the sale
or exchange of a capital asset. Dividends paid in Hong Kong dollar will be
includible in income in a United States dollar amount based on the United
States dollar - Hong Kong dollar exchange rate prevailing at the time of
receipt of such dividends by the depositary, in the case of ADSs, or by the US
Holder, in the case of H shares held directly by such US Holder. Gain or loss,
if any, recognized on a subsequent sale, conversion or other disposition of
Hong Kong dollars generally will be U.S. source income or loss. Dividends
received on H shares or ADSs will not be eligible for the dividends received
deduction allowed to corporations.

         Dividends received on H shares or ADSs will be treated, for United
States federal income tax purposes, as foreign source income. A US Holder may
be eligible, subject to a number of complex limitations, to claim a foreign
tax credit in respect of any foreign withholding taxes imposed on dividends
received on H shares or ADSs. US Holders who do not elect to claim a foreign
tax credit for foreign income tax withheld may instead claim a deduction, for
United States federal income tax purposes, in respect of such withholdings,
but only for a year in which the US Holder elects to do so for all creditable
foreign income taxes.

         A distribution of additional shares of Sinopec Corp.'s stock to US
Holders with respect to their H shares or ADSs that is pro rata to all Sinopec
Corp.'s shareholders may not be subject to United States federal income tax.
The tax basis of such additional shares will be determined by allocating the
US Holders' adjusted

                                      80
<PAGE>

tax basis in the H shares or ADSs between the H shares or ADSs and the
additional shares, based on their relative fair market values on the date of
distribution.

         Sale or Other Disposition of H shares or ADSs

         A US Holder will recognize capital gain or loss upon the sale or
other disposition of H shares or ADSs in an amount equal to the difference
between the amount realized upon the disposition and the US Holder's adjusted
tax basis in such H shares or ADSs, as each is determined in US dollars. Any
capital gain or loss will be long-term if the H shares or ADSs have been held
for more than one year and may be, under the income tax treaty between the
People's Republic of China and the United States, foreign source gain or loss.
The claim of a deduction in respect of a capital loss, for United States
federal income tax purposes, may be subject to limitations.

         PFIC Considerations

         If Sinopec Corp. were to be classified as a PFIC in any taxable year,
a U.S. Holder would be subject to special rules generally intended to reduce
or eliminate any benefits from the deferral of United States federal income
tax that a U.S. Holder could derive from investing in a foreign company that
does not distribute all of its earnings on a current basis. In such event, a
U.S. Holder of the H shares or ADSs may be subject to tax at ordinary income
tax rates on (i) any gain recognized on the sale of the H shares or ADSs and
(ii) any "excess distribution" paid on the H shares or ADSs (generally, a
distribution in excess of 125% of the average annual distributions paid by
Sinopec Corp. in the three preceding taxable years). In addition, a U.S.
Holder may be subject to an interest charge on such gain or excess
distribution.

         The above results may be eliminated if a "mark-to-market" election is
available and a US Holder validly makes such an election. If the election is
made, such holder generally will be required to take into account the
difference, if any, between the fair market value and its adjusted tax basis
in H shares or ADSs at the end of each taxable year as ordinary income or
ordinary loss (to the extent of any net mark-to-market gain previously
included in income). In addition, any gain from a sale or other disposition of
H shares or ADSs will be treated as ordinary income, and any loss will be
treated as ordinary loss (to the extent of any net mark-to-market gain
previously included in income).

Non-US Holders

         An investment in H shares or ADSs by a Non-US Holder will not give
rise to any United States federal income tax consequences unless:

     o    the dividends received or gain recognized on the sale of H shares or
          ADSs by such person is treated as effectively connected with the
          conduct of a trade or business by such person in the United States
          as determined under United States federal income tax law; or

     o    in the case of gains recognized on a sale of H shares or ADSs by an
          individual, such individual is present in the United States for 183
          days or more and certain other conditions are met.

         In order to avoid back-up withholding on dividend payments made in
the United States, a Non-US Holder of the H shares or ADSs may be required to
complete, and provide the payer with, an Internal Revenue Service Form W-8BEN,
or other documentary evidence, certifying that such holder is an exempt
foreign person.

         F.   DIVIDENDS AND PAYING AGENTS

         Not applicable.

         G.   STATEMENT BY EXPERTS

         Not applicable.

                                      81
<PAGE>

         H.   DOCUMENTS ON DISPLAY

         We filed with the Securities and Exchange Commission in Washington,
D.C. a Registration Statement on Form F-1 (Registration No. 333-12502) under
the Securities Act in connection with the ADSs offered in the global offering.
The Registration Statement contains exhibits and schedules. Any statement in
this annual report about any of our contracts or other documents is not
necessarily complete. If the contract or document is filed as an exhibit to
the Registration Statement, the contract or document is deemed to modify the
description contained in this annual report. You must review the exhibits
themselves for a complete description of the contract or documents.

         You may inspect and copy our registration statements, including their
exhibits and schedules, and the reports and other information we file with the
Securities and Exchange Commission in accordance with the Exchange Act at the
public reference facilities maintained by the Securities and Exchange
Commission at Judiciary Plaza, 450 Fifth Street, Room 1024, N.W., Washington,
D.C. 20549 and at the regional offices of the Securities and Exchange
Commission located at 233 Broadway, New York, NY 10279 and at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may also
inspect the registration statements, including their exhibits and schedules,
at the office of the New York Stock Exchange, Wall Street, New York, New York
10005. Copies of such material may also be obtained from the Public Reference
Section of the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. You may obtain information
regarding the Washington D.C. Public Reference Room by calling the Securities
and Exchange Commission at 1-800-SEC-0330 or by contacting the Securities and
Exchange Commission over the internet at its website at http://www.sec.gov.

         I.   SUBSIDIARY INFORMATION

         Not applicable.

ITEM 11. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

         Our primary market risk exposures are to fluctuations in oil and gas
prices, exchange rates and interest rates.

Commodity Price Risk

         We are exposed to fluctuations in prices of crude oil, refined
products and petrochemicals whose prices are volatile. We purchase substantial
volumes of crude oil from domestic and international suppliers and sell
substantial volumes of refined products and petrochemicals to domestic buyers.
We do not enter into commodity derivative instruments or futures to hedge the
potential price fluctuations of these products or for other purposes.
Therefore, fluctuations of prices of crude oil, refined products and
petrochemicals have a significant effect on our operating expenses and net
profits.

Foreign Exchange Rate Risk

         A portion of the our Renminbi revenues are converted into other
currencies to meet foreign currency financial instrument obligations and to
pay for imported materials and equipment. Foreign currency payments for
imported equipment represented 9.6%, 5.6% and 7.5% of our total capital
expenditure in 2002, 2003 and 2004, respectively. Foreign currency payments
for other imports, principally crude oil, represented 34.5%, 40.5% and 42.9%
of our purchased crude oil, products and operating supplies and expenses in
2002, 2003 and 2004, respectively.

         The Renminbi is not a freely convertible currency. Actions taken by
the PRC government could cause future exchange rates to vary significantly
from current or historical exchange rates. Although the Renminbi to US dollar
exchange rate has been relatively stable since 1994, we cannot predict nor
give any assurance of its future stability. Fluctuations in exchange rates may
adversely affect the value, translated or converted into US dollars or Hong
Kong dollars, of our net assets, earnings and any declared dividends. We
cannot give any assurance that any future movements in the exchange rate of
the Renminbi against the US dollar and other foreign currencies will not
adversely affect our results of operations and financial condition.

                                      82
<PAGE>

         The following presents various market risk information regarding
market-sensitive financial instruments that we held or issued as of December
31, 2004 and 2003. We conduct our business primarily in Renminbi, which is
also our functional and reporting currency.

         The following tables provide information regarding instruments that
are sensitive to foreign exchange rates as of December 31, 2004 and 2003. For
debt obligations, the table presents cash flows and related weighted average
rates by expected maturity dates.

                                      83
<PAGE>

As of December 31, 2004:

<TABLE>
<CAPTION>

                                                             Expected maturity
                                    ------------------------------------------------------------------
                                       2005       2006      2007       2008       2009    thereafter      Total     Fair value
                                       ----       ----      ----       ----       ----    ----------      -----     ----------
                                           (RMB equivalent in millions, except interest rates)
                                           ---------------------------------------------------

<S>                                    <C>          <C>       <C>        <C>        <C>        <C>       <C>          <C>

Assets
Cash and cash equivalents
       In United States dollar           786          -         -          -          -          -         786          786
       In Hong Kong dollar                50          -         -          -          -          -          50           50
       In Japanese yen                    18          -         -          -          -          -          18           18
       In Euro                            10          -         -          -          -          -          10           10

Time deposits with financial
  institutions
       In United States dollar            23          -         -          -          -          -          23           23

Liabilities

Debts in United States dollar
       Fixed rate                      1,441        278       289        192        194        870       3,264        3,284
       Average interest rate             4.2%       3.9%      3.6%       3.3%       2.9%       2.5%
       Variable rate                  12,894      1,970     1,256        307        306      1,351      18,084       18,084
       Average interest rate (1)         3.2%       3.4%      3.3%       3.5%       3.5%       3.5%

Debts in Japanese yen
       Fixed rate                        294        281       198        116        116      1,138       2,143        2,355
       Average interest rate             3.2%       3.0%      2.8%       2.6%       2.6%       2.6%
       Variable rate                     511        405       387        279        291        546       2,419        2,419
       Average interest rate (1)         4.4%       4.1%      4.2%       4.3%       5.2%       5.1%

Debts in Hong Kong dollar
       Fixed rate                        417          -         -          -          -          -         417          417
       Average interest rate             1.5%         -         -          -          -          -
       Variable rate                     781          1         -          -          -          -         782          782
       Average interest rate (1)         3.4%       5.3%        -          -          -          -

Debts in Euro
       Fixed rate                         28         28        28         28         28         25         165          165
       Average interest rate             6.7%       6.7%      6.7%       6.7%       6.7%       6.7%


(1)    The average interest rates for variable rate loans are calculated based on the rates reported as of December 31,
       2004.
</TABLE>

                                      84
<PAGE>

As of December 31, 2003:

<TABLE>
<CAPTION>

                                                             Expected maturity
                                    ------------------------------------------------------------------
                                       2004       2005      2006       2007       2008    thereafter      Total     Fair value
                                       ----       ----      ----       ----       ----    ----------      -----     ----------
                                           (RMB equivalent in millions, except interest rates)
                                           ---------------------------------------------------

<S>                                    <C>          <C>       <C>        <C>        <C>        <C>       <C>          <C>

Assets
Cash and cash equivalents
       In United States dollar          968          -          -          -         -            -       968          968
       In Hong Kong dollar               38          -          -          -         -            -        38           38
       In Japanese yen                   16          -          -          -         -            -        16           16
       In Euro                           17          -          -          -         -            -        17           17

Time deposits with financial
  institutions
       In United States dollar           59          -          -          -         -            -        59           59
       In Hong Kong dollar               37          -          -          -         -            -        37           37

Liabilities

Debts in United States dollar
       Fixed rate                     4,547        706        348        191       169        1,060     7,021        7,063
       Average interest rate            3.4%       5.3%       5.1%       4.7%      4.7%         4.2%
       Variable rate                  6,475      1,506      1,583        410       333          975    11,282       11,282
       Average interest rate (1)        2.0%       2.7%       2.3%       2.7%      2.6%         1.4%

Debts in Japanese yen
       Fixed rate                       593        485        475        397       317        1,839     4,106        4,542
       Average interest rate            3.7%       3.6%       3.5%       3.3%      3.2%         3.2%
       Variable rate                    241        242        138        114         -            -       735          735
       Average interest rate (1)        1.2%       1.2%       1.6%       1.6%        -            -

Debts in Hong Kong dollar
       Fixed rate                       116          -          -          -         -            -       116          116
       Average interest rate            0.7%         -          -          -         -            -
       Variable rate                      4          2          1          -         -            -         7            7
       Average interest rate (1)        5.3%       5.3%       5.3%         -         -            -

Debts in Europe dollar
       Fixed rate                        83         75         75         75        75          185       568          568
       Average interest rate            6.5%       6.4%       6.4%       6.4%      6.4%         6.2%


(1)    The average interest rates for variable rate loans are calculated based on the rates reported as of December 31, 2003.

</TABLE>

                                      85
<PAGE>

Interest Rate Risk

         We are exposed to interest rate risk resulting from fluctuations in
interest rates on our short- and long-term debts. Upward fluctuations in
interest rates increase the cost of new debt and the interest cost of
outstanding floating rate borrowings.

         Our debts consist of fixed and variable rate debt obligations with
original maturities ranging from 1 to 27 years. Fluctuations in interest rates
can lead to significant fluctuations in the fair values of our debt
obligations.

         The following tables present principal cash flows and related
weighted average interest rates by expected maturity dates of our interest
rate sensitive financial instruments as of December 31, 2004 and 2003.

                                      86
<PAGE>

As of December 31, 2004:

<TABLE>
<CAPTION>

                                                             Expected maturity
                                    ------------------------------------------------------------------
                                       2005       2006      2007       2008       2009    thereafter      Total     Fair value
                                       ----       ----      ----       ----       ----    ----------      -----     ----------
                                           (RMB equivalent in millions, except interest rates)
                                           ---------------------------------------------------

<S>                                    <C>         <C>       <C>        <C>      <C>        <C>           <C>          <C>

Cash and cash equivalents
       In Renminbi                    15,517        -         -         -         -          -            15,517       15,517
       In United States dollar           786        -         -         -         -          -               786          786
       In Hong Kong dollar                50        -         -         -         -          -                50           50
       In Japanese yen                    18        -         -         -         -          -                18           18
       In Euro                            10        -         -         -         -          -                10           10

Time deposits with financial
  institutions
       In Renminbi                     1,876        -         -         -         -          -             1,876        1,876
       In United States dollar            23        -         -         -         -          -                23           23

Liabilities

Debts in Renminbi
       Fixed rate                     24,105   12,523    18,973     6,741     5,888     39,699           107,929      107,840 (1)
       Average interest rate             4.9%     4.9%      4.9%      4.9%      4.8%       0.5%
       Variable rate                     550      400       102       169       153      2,031             3,405        3,405
       Average interest rate (2)         5.5%     5.5%      5.5%      5.5%      5.5%       5.5%

Debts in United States dollar
       Fixed rate                      1,441      278       289       192       194        870             3,264        3,284
       Average interest rate             4.2%     3.9%      3.6%      3.3%      2.9%       2.5%
       Variable rate                  12,894    1,970     1,256       307       306      1,351            18,084       18,084
       Average interest rate (2)         3.2%     3.4%      3.3%      3.5%      3.5%       3.5%

Debts in Japanese yen
       Fixed rate                        294      281       198       116       116      1,138             2,143        2,355
       Average interest rate             3.2%     3.0%      2.8%      2.6%      2.6%       2.6%
       Variable rate                     511      405       387       279       291        546             2,419        2,419
       Average interest rate (2)         4.4%     4.1%      4.2%      4.3%      5.2%       5.1%

Debts in Hong Kong dollar
       Fixed rate                        417        -         -         -         -          -               417          417
       Average interest rate             1.5%       -         -         -         -          -
       Variable rate                     781        1         -         -         -          -               782          782
       Average interest rate (2)         3.4%     5.3%        -         -         -          -

Debts in Euro
       Fixed rate                         28       28        28        28        28         25               165          165
       Average interest rate             6.7%     6.7%      6.7%      6.7%      6.7%       6.7%


(1)    Carrying amounts are used for loans from Sinopec Group Company and its affiliates as it is not practicable
       to estimate their fair values because the cost of obtaining discount and borrowing rates for comparable
       borrowings would be excessive.

(2)    The average interest rates for variable rate loans are calculated based on the rates reported as of
       December 31, 2004.

</TABLE>

                                      87
<PAGE>

As of December 31, 2003:

<TABLE>
<CAPTION>

                                                             Expected maturity
                                     ---------------------------------------------------------
                                     2004       2005      2006     2007     2008    thereafter           Total     Fair value
                                     ----       ----      ----     ----     ----    ----------           -----     ----------
                                           (RMB equivalent in millions, except interest rates)
                                           ---------------------------------------------------

<S>                                 <C>          <C>       <C>      <C>        <C>        <C>             <C>        <C>

Assets

Cash and cash equivalents
       In Renminbi                  15,224        -        -        -        -           -               15,224       15,224
       In United States dollar         968        -        -        -        -           -                  968          968
       In Hong Kong dollar              38        -        -        -        -           -                   38           38
       In Japanese yen                  16        -        -        -        -           -                   16           16
       In Euro                          17        -        -        -        -           -                   17           17

Time deposits with financial
  institutions
       In Renminbi                   2,088        -        -        -        -           -                2,088        2,088
       In United States dollar          59        -        -        -        -           -                   59           59
       In Hong Kong dollar              37        -        -        -        -           -                   37           37

Liabilities

Debts in Renminbi
       Fixed rate                   19,998    9,162    7,798    9,957    6,131      37,746               90,792       90,412 (1)
       Average interest rate           4.8%     5.0%     5.0%     5.1%     5.1%        0.3%
       Variable rate                 1,989    2,301    1,621       65       61         678                6,715        6,715
       Average interest rate (2)       5.1%     5.1%     5.1%     4.9%     4.8%        4.8%

Debts in United States dollar
       Fixed rate                    4,547      706      348      191      169       1,060                7,021        7,063
       Average interest rate           3.4%     5.3%     5.1%     4.7%     4.7%        4.2%
       Variable rate                 6,475    1,506    1,583      410      333         975               11,282       11,282
       Average interest rate (2)       2.0%     2.7%     2.3%     2.7%     2.6%        1.4%

Debts in Japanese yen
       Fixed rate                      593      485      475      397      317       1,839                4,106        4,542
       Average interest rate           3.7%     3.6%     3.5%     3.3%     3.2%        3.2%
       Variable rate                   241      242      138      114        -           -                  735          735
       Average interest rate (2)       1.2%     1.2%     1.6%     1.6%       -           -

Debts in Hong Kong dollar
       Fixed rate                      116        -        -        -        -           -                  116          116
       Average interest rate           0.7%       -        -        -        -           -
       Variable rate                     4        2        1        -        -           -                    7            7
       Average interest rate (2)       5.3%     5.3%     5.3%       -        -           -

Debts in Euro
       Fixed rate                       83       75       75       75       75         185                  568          568
       Average interest rate           6.5%     6.4%     6.4%     6.4%     6.4%        6.2%


(1)    Carrying amounts are used for loans from Sinopec Group Company and its affiliates as it is not
       practicable to estimate their fair values because the cost of obtaining discount and borrowing
       rates for comparable borrowings would be excessive.

(2)    The average interest rates for variable rate loans are calculated based on the rates reported
       as of December 31, 2003.

</TABLE>

                                      88
<PAGE>

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

         Not applicable.


                                    PART II


ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

         None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
         PROCEEDS

         A.   MATERIAL MODIFICATIONS TO THE RIGHTS TO SECURITIES HOLDERS

         None.

         B.   USE OF PROCEEDS

         The following use of proceeds information relates to the registration
statement on Form F-1 (Registration No. 333-12502) filed by us in connection
with the global offering of American depositary shares underlying our H
shares, which went effective on October 11, 2000.

         The use of offering proceeds is described in Section 4, Item 8 -
Disclosure of Significant Events, in our 2004 annual report.

ITEM 15. CONTROLS AND PROCEDURES

         Our management, with the participation of our Chairman, President and
Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) of the Securities
Exchange Act of 1934) as of the end of the fiscal year covered by this annual
report. Based on this evaluation, our Chairman, President and Chief Financial
Officer have concluded that, as of the end of the fiscal year covered by this
annual report, our disclosure controls and procedures were adequate and
effective to ensure that material information relating to our company,
including our consolidated subsidiaries, was made know to them by others
within our company and our consolidated subsidiaries.

         In 2004, we continued to make effort to improve and strengthen our
corporate governance.

     o    In accordance with the Notice on Certain Issues Relating to
          Regulating Fund Transfers between a Listed Company and Connected
          Parties and the External Guarantees of Listed Company promulgated by
          the China Securities Regulatory Commission and the State-owned
          Assets Supervision and Administration Commission of the State
          Council and the new Listing Rules introduced by the Hong Kong Stock
          Exchange, we have made prompt amendments to our corporate governance
          documents such as Articles of Association, Rules and Procedures for
          the General Meeting of Shareholders and Rules and Procedures for
          Board of Directors Meeting and, in particular, revised various
          provisions related to corporate guarantee, voting on connected
          transactions and nomination of directors. The amended Articles of
          Association, Rules and Procedures for the General Meeting of
          Shareholders and Rules and Procedures for Board of Directors Meeting
          were attached as Exhibit 1 to our 2003 Annual Report on Form 20-F
          filed with the Securities and Exchange Commission on June 18, 2004.

     o    Based on the evaluation results in respect to the operation of our
          internal control system, we have revised and optimized the system by
          introducing two new procedures, namely, Procedure for Importing
          Ordinary Equipment and Materials as an Agent and Intangible Assets
          Management Procedure. The revised internal control system comprises
          13 broad categories which are sub-divided into 43 individual
          procedures regarding production, operation and management of our
          company. The proposal of the revision of the system was approved by
          our board of directors on

                                      89
<PAGE>

          October 31, 2004, and the implementation of the revised system in all
          operation and management areas have started since January 2005.

     o    Pursuant to relevant domestic and overseas regulatory requirements
          and Rules on Corporate Information Disclosure System and Rules on
          the Work of Corporate Investor Relations of Sinopec Corp., we are
          committed to further enhancing information disclosure and to
          improving investor relations.

ITEM 16. RESERVED

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

         The board of directors has determined that Mr. Zhang Youcai qualifies
as an audit committee financial expert in accordance with the terms of Item
16.A of Form 20-F. For Mr. Zhang's biographical information, see "Item 6
Directors, Senior Management and Employees - A. Directors, members of the
supervisory committee and senior management."

ITEM 16B. CODE OF ETHICS

         As of the date of this annual report, we do not have, in form, a code
of ethics that applies to our principal executive officer, principal financial
officer and principal accounting officer. Our principal executive officers,
Mr. Chen Tonghai (Chairman) and Mr. Wang Jiming (President(1)), and our
principal financial officer, Mr. Zhang Jiaren (CFO), currently also serve as
our directors and are thus subject to the director service contracts that they
have with us. Under the director service contracts, each of them agrees that
he owes a fiduciary and diligence obligation to our company and that he shall
not engage in any activities in competition with our business or carry any
activities detrimental to the interests of our company. Each of them also
agrees to perform his respective duties as a director and senior officer in
accordance with the Company Law of the PRC, relevant rules and regulations
promulgated by China Securities Regulatory Commission and the Mandatory
Provisions of Articles of Association of Overseas Listed Companies.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

         The following table sets forth the aggregate audit fees,
audit-related fees, tax fees of our principal accountants and all other fees
billed for products and services provided by our principal accountants other
than the audit fees, audit-related fees and tax fees for each of the fiscal
years 2003 and 2004:

               Audit Fees         Audit-Related Fees  Tax Fees     Other Fees
               ----------         ------------------  --------     ----------
2003         RMB 79 million         RMB 8 million         --            --
2004         RMB 76 million               --              --            --

         Before our principal accountants were engaged by our company or our
subsidiaries to render audit or non-audit services, the engagement has been
approved by our audit committee.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDITS COMMITTEES

         Not applicable.

ITEM 16E. PURCHASERS OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
          PURCHASERS

         None.

---------------------
(1)  Mr. Wang Jiming served as President of Sinopec Corp. until March 2005.
     Mr. Wang Tianpu was appointed as President of Sinopec Corp. in March 2005.

                                      90
<PAGE>

                                   PART III

ITEM 17. FINANCIAL STATEMENTS

         Not applicable.

ITEM 18. FINANCIAL STATEMENTS

         See F-pages following Item 19.

ITEM 19. EXHIBITS

1**      Articles of Association of the Registrant, amended and adopted by
         the shareholders' meeting on April 22, 2004 (English version),
         incorporated by reference to Exhibit 1 to our Annual Report on Form
         20-F filed with the Securities and Exchange Commission on June 18,
         2004.

4.1**    Director Service Contracts, incorporated by reference to Exhibit 4.1
         to our Annual Report on Form 20-F filed with the Securities and
         Exchange Commission on June 18, 2003.

4.2**    Supervisor Service Contract, incorporated by reference to Exhibit 4.2
         to our Annual Report on Form 20-F filed with the Securities and
         Exchange Commission on June 18, 2003.

4.3**    Reorganization Agreement between China Petrochemical Corporation and
         China Petroleum & Chemical Corporation dated June 3, 2000 (including
         English translation), incorporated by reference to Exhibit 10.1 to
         our Registration Statement on Form F-1 filed with the Securities and
         Exchange Commission on October 10, 2000 (File Number: 333-12502).

4.4**    Agreement for Mutual Provision of Products and Ancillary Services
         between China Petrochemical Corporation and China Petroleum &
         Chemical Corporation dated June 3, 2000 (including English
         translation), incorporated by reference to Exhibit 10.3 to our
         Registration Statement on Form F-1 filed with the Securities and
         Exchange Commission on October 10, 2000 (File Number: 333-12502).

4.5**    Agreement for Provision of Cultural, Educational, Hygiene and
         Community Services between China Petrochemical Corporation and China
         Petroleum & Chemical Corporation dated June 3, 2000 (including
         English translation), incorporated by reference to Exhibit 10.4 to
         our Registration Statement on Form F-1 filed with the Securities and
         Exchange Commission on October 10, 2000 (File Number: 333-12502).

4.6**    Trademark License Agreement between China Petrochemical Corporation
         and China Petroleum & Chemical Corporation dated June 3, 2000
         (including English translation), incorporated by reference to Exhibit
         10.6 to our Registration Statement on Form F-1 filed with the
         Securities and Exchange Commission on October 10, 2000 (File Number:
         333-12502).

4.7**    Patents and Proprietary Technology License Contract between China
         Petrochemical Corporation and China Petroleum & Chemical Corporation
         dated June 3, 2000 (including English translation), incorporated by
         reference to Exhibit 10.7 to our Registration Statement on Form F-1
         filed with the Securities and Exchange Commission on October 10, 2000
         (File Number: 333-12502).

4.8**    Computer Software License Contract between China Petrochemical
         Corporation and China Petroleum & Chemical Corporation dated June 3,
         2000 (including English translation), incorporated by reference to
         Exhibit 10.8 to our Registration Statement on Form F-1 filed with the
         Securities and Exchange Commission on October 10, 2000 (File Number:
         333-12502).

4.9**    Assets Swap Contract between China Petrochemical Corporation and
         China Petroleum & Chemical Corporation dated June 3, 2000 (including
         English translation), incorporated by reference to Exhibit 10.9 to
         our Registration Statement on Form F-1 filed with the Securities and
         Exchange Commission on October 10, 2000 (File Number: 333-12502).

4.10**   Land Use Rights Leasing Contract between China Petrochemical
         Corporation and China Petroleum & Chemical Corporation dated June 3,
         2000 (including English translation), incorporated by reference to

                                      91
<PAGE>

         Exhibit 10.10 to our Registration Statement on Form F-1 filed with
         the Securities and Exchange Commission on October 10, 2000 (File
         Number: 333-12502).

4.12**   Property Leasing Contract between China Petrochemical Corporation and
         China Petroleum & Chemical Corporation dated June 3, 2000 (including
         English translation), incorporated by reference to Exhibit 10.11 to
         our Registration Statement on Form F-1 filed with the Securities and
         Exchange Commission on October 10, 2000 (File Number: 333-12502).

4.13**   Accounts Collectable Contract between China Petrochemical Corporation
         and China Petroleum & Chemical Corporation dated August 16, 2000
         (including English translation), incorporated by reference to Exhibit
         10.17 to our Registration Statement on Form F-1 filed with the
         Securities and Exchange Commission on October 10, 2000 (File Number:
         333-12502).

4.14**   Loan Transfer and Adjustment Contract between China Petrochemical
         Corporation and China Petroleum & Chemical Corporation dated August
         16, 2000 (including English translation), incorporated by reference
         to Exhibit 10.18 to our Registration Statement on Form F-1 filed with
         the Securities and Exchange Commission on October 10, 2000 (File
         Number: 333-12502).

8*       A list of the Registrant's subsidiaries.

12.1*    Certification of Chairman pursuant to Rule 13a-14(a).

12.2*    Certification of President pursuant to Rule 13a-14(a).

12.3*    Certification of CFO pursuant to Rule 13a-14(a).

13*      Certification of CEO and CFO pursuant to 18 U.S.C. ss.1350, and Rule
         13a-14(b).

*  Filed as part of this annual report

** Incorporated by reference.

                                      92
<PAGE>
<TABLE>
                            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

                                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>


                                                                                                            Page
                                                                                                            ----

<S>                                                                                                            <C>
Report of independent registered public accounting firm .................................................    F-2


Consolidated statements of income for the years ended December 31, 2002, 2003 and 2004 ..................    F-3


Consolidated balance sheets as of December 31, 2003 and 2004 ............................................    F-4


Consolidated statements of cash flows for the years ended December 31, 2002, 2003 and 2004...............    F-5


Consolidated statements of shareholders' equity for the years ended December 31, 2002, 2003 and 2004.....    F-7


Notes to consolidated financial statements...............................................................    F-9


Supplemental information on oil and gas producing activities (unaudited).................................   F-59

</TABLE>


                                      F-1
<PAGE>



            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Shareholders of
China Petroleum & Chemical Corporation:

     We have audited the accompanying consolidated balance sheets of China
Petroleum & Chemical Corporation and subsidiaries (the "Group") as of December
31, 2003 and 2004, and the related consolidated statements of income, cash
flows and shareholders' equity for each of the years in the three-year period
ended December 31, 2004, all expressed in Renminbi. These consolidated
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

     We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). 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 management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of China
Petroleum & Chemical Corporation and subsidiaries as of December 31, 2003 and
2004, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2004, in conformity with
International Financial Reporting Standards promulgated by the International
Accounting Standards Board.

     International Financial Reporting Standards vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 34 to the consolidated financial statements.

     The accompanying consolidated financial statements as of and for the year
ended December 31, 2004 have been translated into United States dollars solely
for the convenience of the reader. We have audited the translation and in our
opinion, the consolidated financial statements expressed in Renminbi have been
translated into United States dollars on the basis set forth in Note 1 to the
consolidated financial statements.



     KPMG
     Hong Kong, China
     March 25, 2005


                                      F-2
<PAGE>

<TABLE>

                            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

                                       CONSOLIDATED STATEMENTS OF INCOME
                              FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
                                  (Amounts in millions, except per share data)
<CAPTION>


                                                                              Years ended December 31,
                                                                     -----------------------------------------
                                                            Note       2002       2003       2004       2004
                                                                     --------   --------    -------   -------
                                                                       RMB         RMB        RMB        US$
OPERATING REVENUES
<S>                                                           <C>     <C>        <C>        <C>        <C>
     Sales of goods.......................................            333,873    429,949    597,197    72,156
     Other operating revenues.............................    3        16,205     19,052     22,586     2,729
                                                                     --------   --------    -------   -------
                                                                      350,078    449,001    619,783    74,885
OPERATING EXPENSES
     Purchased crude oil, products and operating supplies
        and expenses......................................           (239,088)  (313,238)  (443,590)  (53,596)
     Selling, general and administrative expenses.........            (22,367)   (27,228)   (31,843)   (3,847)
     Depreciation, depletion and amortization.............            (26,492)   (27,951)   (32,342)   (3,908)
     Exploration expenses, including dry holes............             (4,363)    (6,133)    (6,396)     (773)
     Personnel expenses...................................    4       (15,024)   (16,972)   (18,634)   (2,251)
     Employee reduction expenses..........................    5          (244)    (1,040)      (919)     (111)
     Taxes other than income tax..........................    6       (12,015)   (13,581)   (16,324)   (1,973)
     Other operating expenses, net........................    7        (1,184)    (3,975)    (6,666)     (806)
                                                                     --------   --------    -------   -------
          Total operating expenses........................           (320,777)  (410,118)  (556,714)  (67,265)
                                                                     --------   --------    -------   -------
Operating income..........................................             29,301     38,883     63,069     7,620
                                                                     --------   --------    -------   -------

FINANCE COSTS
     Interest expense.....................................    8        (4,932)    (4,365)    (4,583)     (553)
     Interest income......................................                351        322        374        45
     Foreign exchange losses..............................               (427)      (450)      (223)      (27)
     Foreign exchange gains...............................                 60         30         61         7
                                                                     --------   --------    -------   -------
          Net finance costs...............................             (4,948)    (4,463)    (4,371)     (528)
Gain from issuance of shares by a subsidiary..............    9             -        136          -         -
Investment income.........................................                239         89        111        14
Income from associates....................................                324        396        797        96
                                                                     --------   --------    -------   -------
Income before income tax and minority interests ..........             24,916     35,041     59,606     7,202
Income tax................................................   10        (7,491)   (10,645)   (17,815)   (2,153)
Income before minority interests..........................             17,425     24,396     41,791     5,049
Minority interests........................................             (1,129)    (1,972)    (5,772)     (697)
                                                                     --------   --------    -------   -------
Net income ...............................................             16,296     22,424     36,019     4,352
                                                                     ========   ========    =======   =======

Basic earnings per share..................................   11          0.19       0.26       0.42    0.05
                                                                     ========   ========    =======   =======

Weighted average number of shares.........................   11        86,702     86,702     86,702    86,702
                                                                     ========   ========    =======   =======


                          See accompanying notes to consolidated financial statements.
</TABLE>

                                                      F-3
<PAGE>

<TABLE>
                            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

                                          CONSOLIDATED BALANCE SHEETS
                                        AS OF DECEMBER 31, 2003 AND 2004
                                             (Amounts in millions)
<CAPTION>


                                                                                 December 31,
                                                                        ---------------------------------
                                                                 Note      2003        2004       2004
                                                                        ---------    --------   --------
                                                                           RMB         RMB         US$
                             ASSETS
Current assets
<S>                                                               <C>      <C>         <C>         <C>
     Cash and cash equivalents.................................            16,263      16,381      1,979
     Time deposits with financial institutions.................             2,184       1,899        229
     Trade accounts receivable, net............................   12        9,479       9,756      1,179
     Bills receivable..........................................             6,283       7,812        944
     Inventories...............................................   13       47,916      64,329      7,772
     Prepaid expenses and other current assets.................   14       20,914      20,094      2,428
                                                                          -------     -------     ------
          Total current assets.................................           103,039     120,271     14,531
Non-current assets
     Property, plant and equipment, net........................   15      270,731     284,123     34,329
     Construction in progress..................................   16       29,354      46,185      5,580
     Investments...............................................   17        2,709       2,538        307
     Interests in associates...................................   18        8,121      10,222      1,235
     Deferred tax assets.......................................   20        3,067       4,558        551
     Lease prepayments.........................................               810         750         91
     Long-term prepayments and other assets....................   21        2,353      5,947         718
                                                                          -------     -------     ------
          Total non-current assets.............................           317,145     354,323     42,811
                                                                          -------     -------     ------
          Total assets.........................................           420,184     474,594     57,342
                                                                          =======     =======     ======
              LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
     Short-term debts..........................................   22       29,181      32,307      3,903
     Loans from Sinopec Group Company and its affiliates.......   22        4,865       8,714      1,053
     Trade accounts payable....................................   23       23,319      23,792      2,875
     Bills payable.............................................            24,267      30,797      3,721
     Accrued expenses and other payables.......................   24       43,561      45,276      5,470
     Income tax payable........................................             4,079       5,391        651
                                                                          -------     -------     ------
          Total current liabilities............................           129,272     146,277     17,673
Non-current liabilities
     Long-term debts...........................................   22       48,257      60,822      7,349
     Loans from Sinopec Group Company and its affiliates.......   22       39,039      36,765      4,442
     Deferred tax liabilities..................................   20        4,599       5,636        681
     Other liabilities.........................................             1,451       1,008        122
          Total non-current liabilities........................            93,346     104,231     12,594
                                                                          -------     -------     ------
          Total liabilities....................................           222,618     250,508     30,267
Minority interests.............................................            26,051      31,046      3,751
Shareholders' equity
     Share capital.............................................   25       86,702      86,702     10,476
     Reserves..................................................   26       84,813     106,338     12,848
                                                                          -------     -------     ------
                                                                          171,515     193,040     23,324
                                                                          -------     -------     ------
          Total liabilities and shareholders' equity...........           420,184     474,594     57,342
                                                                          =======     =======     ======


                          See accompanying notes to consolidated financial statements.
</TABLE>

                                                      F-4
<PAGE>

<TABLE>
                            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                              FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
                                             (Amounts in millions)
<CAPTION>



                                                                                      Years ended December 31,
                                                                     Note        2002       2003       2004        2004
                                                                              --------    --------   --------     -------
                                                                                 RMB         RMB        RMB         US$

<S>                                                                  <C>       <C>         <C>        <C>          <C>
Net cash from operating activities................................   (a)       56,749      62,097     69,081       8,347
                                                                              --------    --------   --------     -------
Cash flows from investing activities
     Capital expenditure..........................................            (42,600)    (44,434)   (67,583)     (8,166)
     Capital expenditure of jointly controlled entities...........                 --      (4,107)    (6,035)       (729)
     Purchase of investments and investments in associates........             (2,205)     (1,519)    (1,162)       (140)
     Proceeds from disposal of investments and investments in
        associates................................................                427         141        186          22
     Proceeds from disposal of property, plant and equipment......                464         400        317          38
     Increase in time deposits with financial institutions........             (1,342)     (2,871)    (1,932)       (233)
     Maturity of time deposits with financial institutions........              2,160       1,700      2,217         268
                                                                              --------    --------   --------     -------
          Net cash used in investing activities...................            (43,096)    (50,690)   (73,992)     (8,940)
                                                                              --------    --------   --------     -------
Cash flows from financing activities
     Proceeds from bank and other loans...........................            256,993     235,163    399,440      48,262
                                                                              --------    --------   --------     -------
     Proceeds from bank and other loans of jointly controlled
        entities..................................................                 --       1,450      3,014         364
     Proceeds from issuance of corporate bonds, net of issuing
        expenses..................................................                 --          --      3,472         420
     Repayments of bank and other loans...........................           (264,779)   (243,503)  (388,809)    (46,977)
     Distributions to minority interests..........................               (455)       (360)      (775)        (94)
     Contributions from minority interests........................                230         580      1,008         122
      Dividend paid...............................................             (8,670)     (7,803)    (8,670)     (1,048)
     Cash and cash equivalents distributed to Sinopec Group
        Company...................................................                 --          --     (3,652)       (441)
                                                                              --------    --------   --------     -------
          Net cash (used in)/from financing activities............            (16,681)    (14,473)     5,028         608
                                                                              --------    --------   --------     -------
Net (decrease)/increase in cash and cash equivalents..............             (3,028)     (3,066)       117          15
Effect of foreign exchange rate...................................                  7           5          1           -
Cash and cash equivalents at beginning of year....................             22,345      19,324     16,263       1,964
                                                                              --------    --------   --------     -------
Cash and cash equivalents at end of year..........................             19,324      16,263     16,381       1,979
                                                                              ========    ========   ========     =======


                          See accompanying notes to consolidated financial statements.
</TABLE>

                                                      F-5

<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
                             (Amounts in millions)


(a)   Reconciliation of income before income tax and minority interests to net
      cash from operating activities

<TABLE>
     The reconciliation of income before income tax and minority interests to
net cash from operating activities is as follows:
<CAPTION>

                                                                                        Years ended December 31,
                                                                               -----------------------------------------
                                                                                 2002      2003        2004        2004
                                                                               --------   --------   --------     ------
                                                                                  RMB        RMB        RMB         US$

<S>                                                                             <C>        <C>        <C>          <C>
Income before income tax and minority interests..........................       24,916     35,041     59,606       7,202
     Adjustment for:
     Depreciation, depletion and amortization............................       26,492     27,951     32,342       3,908
     Dry hole cost.......................................................        1,771      2,789      2,976         360
     Income from associates..............................................         (324)      (396)      (797)        (96)
     Investment income...................................................         (239)       (89)      (111)        (14)
     Interest income.....................................................         (351)      (322)      (374)        (45)
     Interest expense....................................................        4,932      4,365      4,583         553
     Gain from issuance of shares by a subsidiary........................           --       (136)        --          --
     Unrealized foreign exchange losses..................................          303        289        150          18
     Loss on disposal of property, plant and equipment, net..............          806      2,238      1,686         204
     Impairment losses on long-lived assets..............................           --        877      3,919         474
     Decrease/(increase) in trade accounts receivable....................          452      1,487       (494)        (60)
     Increase in bills receivable........................................       (1,382)    (1,031)    (1,529)       (185)
     (Increase)/decrease in inventories..................................         (217)       449    (16,526)     (1,997)
     Decrease in prepaid expenses and other current assets...............        4,506        981      3,022         365
     (Increase)/decrease in lease prepayments............................          (11)        19         60           7
     Increase in long-term prepayments and other assets..................         (384)      (781)    (4,199)       (507)
     Increase in trade accounts payable..................................        2,325      3,283        599          72
     Increase/(decrease) in bills payable................................        4,575     (6,544)     6,530         789
     Increase/(decrease) in accrued expenses and other payables..........          205      5,715       (391)        (47)
     Increase/(decrease) in other liabilities............................          745         38       (334)        (40)
                                                                               --------   --------   --------     ------
Cash flow generated from operations .....................................       69,120     76,223     90,718      10,961
     Interest received...................................................          366        313        374          45
     Interest paid.......................................................       (6,489)    (5,392)    (5,450)       (658)
     Investment and dividend income received.............................          355        449        322          39
     Income tax paid.....................................................       (6,603)    (9,496)   (16,883)     (2,040)
                                                                               --------   --------   --------     ------
Net cash from operating activities.......................................       56,749     62,097     69,081       8,347
                                                                               ========   ========   ========     =======


                          See accompanying notes to consolidated financial statements.
</TABLE>


                                                      F-6

<PAGE>

<TABLE>
                            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

                                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                             (Amounts in millions)
<CAPTION>

                                                                                                                    Total
                                                   Share   Capital    Share    Revaluation   Other    Retained   shareholders'
                                                  capital  reserve    premium    reserve    reserves  earnings     equity
                                                 ----------------------------------------------------------------------------
                                                    RMB     RMB        RMB         RMB        RMB       RMB          RMB
<S>                                               <C>       <C>       <C>        <C>        <C>       <C>          <C>

Shareholders' equity at January 1, 2002, as
     previously reported......................... 86,702    (18,878)  18,072     33,025     15,069    22,714       156,704
Adjusted for acquisition of the Acquired Group...     --         --       --         --      2,854        --         2,854
                                                  ------   --------   ------    --------    -------   -------      --------
Shareholders' equity at January 1, 2002, as
     adjusted.................................... 86,702    (18,878)  18,072     33,025     17,923    22,714       159,558
Final dividend for 2001..........................     --         --       --         --         --    (6,936)       (6,936)
Interim dividend for 2002........................     --         --       --         --         --    (1,734)       (1,734)
Net income.......................................     --         --       --         --         --    16,296        16,296
Appropriations (Note 26).........................     --         --       --         --      9,824    (9,824)           --
Revaluation surplus realized.....................     --         --       --       (544)        --       544            --
Elimination of surplus on land use rights........     --         --       --       (840)       246        --          (594)
Realization of deferred tax on land use rights...     --         --       --         --         (5)        5            --
Transfer from retained earnings to other
    reserves ....................................     --         --       --         --        216      (216)           --
Net assets contributed from Sinopec Group
     Company (Note ii)...........................     --         --       --         --        187        --           187
                                                  ------   --------   ------    --------    -------   -------      --------
Shareholders' equity at December 31, 2002........ 86,702    (18,878)  18,072     31,641     28,391    20,849       166,777
Final dividend for 2002 .........................     --         --       --         --         --    (5,202)       (5,202)
Interim dividend for 2003........................     --         --       --         --         --    (2,601)       (2,601)
Net income.......................................     --         --       --         --         --    22,424        22,424
Appropriations (Note 26).........................     --         --       --         --      3,802    (3,802)           --
Revaluation surplus realized.....................     --         --       --     (1,316)        --     1,316            --
Revaluation surplus of Refining Assets...........     --        (82)      --         16         82        --            16
Deferred tax effect of surplus on land use rights     --         --       --         --         16        --            16
Realization of deferred tax on land use rights...     --         --       --         --         (5)        5            --
Transfer from retained earnings to other
     reserves....................................     --         --       --         --      1,157    (1,157)           --
Net assets distributed to Sinopec Group Company
     (Note ii)...................................     --         --       --         --     (6,263)       --        (6,263)
Consideration for Acquisitions of Ethylene Assets
     and Refining assets (Note 1) ...............     --         --       --         --     (3,652)       --        (3,652)
                                                  ------   --------   ------    --------    -------   -------      --------
Shareholders' equity at December 31, 2003........ 86,702    (18,960)  18,072     30,341     23,528    31,832       171,515
Final dividend for 2003 .........................     --         --       --         --         --    (5,202)       (5,202)
Interim dividend for 2004........................     --         --       --         --         --    (3,468)       (3,468)
Net income.......................................     --         --       --         --         --    36,019        36,019
Appropriations (Note 26).........................     --         --       --         --      6,456    (6,456)           --
Revaluation surplus realized.....................     --         --       --     (1,891)        --     1,891            --
Revaluation surplus of Petrochemical and
     Catalyst Assets.............................     --       (257)      --        257        257        --           257
Realization of deferred tax on land use rights...     --         --       --         --         (5)        5            --
Impairment losses on revalued assets (Note 7)....     --         --       --       (709)        --        --          (709)
Transfer from retained earnings to other
     reserves ...................................     --         --       --         --      1,499    (1,499)           --
Net assets distributed to Sinopec Group Company
     (Note ii)...................................     --         --       --         --     (2,244)       --        (2,244)
Consideration for Acquisition of Petrochemical
     and Catalyst Assets.........................     --         --       --         --     (3,128)       --        (3,128)
                                                  ------   --------   ------    --------    -------   -------      --------
Shareholders' equity at December 31, 2004........ 86,702    (19,217)  18,072     27,998     26,363    53,122       193,040
                                                  ======   ========   ======    ========    =======   =======      ========
US Dollars equivalent............................ 10,476     (2,322)   2,184      3,383      3,185     6,418        23,324
                                                  ======   ========   ======    ========    =======   =======      ========
</TABLE>

                                                      F-7
<PAGE>


             CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - (Continued)
                              (Amounts in millions)

Note:

(i)    Net gains and losses not recognized in the consolidated statements of
       income represent revaluation surplus and impairment losses recognized
       directly against the related revaluation reserve in respect of those
       assets that were carried at revalued amount after adjusting for the
       amount attributable to minority interests. Net gains not recognized in
       the combined statements of income was nil for the year ended December 31,
       2002 and amounted to RMB 16 for the year ended December 31, 2003. Net
       losses not recognized in the combined statements of income was RMB 452
       for the year ended December 31, 2004. The recognized gains of the Group,
       which represents the aggregate of the net income, the revaluation surplus
       and impairment losses recognized directly against the related revaluation
       reserve in respect of those assets that were carried at revalued amount
       were RMB 16,296, RMB 22,440 and RMB 35,567 for the years ended December
       31, 2002, 2003 and 2004, respectively.

(ii)   These represent net assets contributed from and distributed to Sinopec
       Group Company for no monetary consideration. The net assets distributed
       to Sinopec Group Company during the year ended December 31, 2004
       primarily represent certain assets retained by Sinopec Group Company in
       connection with the Acquisition of Petrochemical and Catalyst Assets. The
       net assets distributed to Sinopec Group Company during the year ended
       December 31, 2003 primarily represent certain assets retained by Sinopec
       Group Company in connection with the Acquisition of Ethylene Assets and
       the Acquisition of Refining Assets. These transactions were recorded at
       historical cost and was reflected as changes in other reserves in the
       Acquisition of the year the transaction occurred.


          See accompanying notes to consolidated financial statements.




                                      F-8
<PAGE>

             CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (All amounts in millions of Renminbi, except share data)



1     PRINCIPAL ACTIVITIES, ORGANIZATION AND BASIS OF PRESENTATION

Principal activities

     China Petroleum & Chemical Corporation (the "Company") is an energy and
chemical company that, through its subsidiaries (hereinafter collectively
referred to as the "Group"), engages in fully integrated oil and gas and
chemical operations in the People's Republic of China (the "PRC"). Oil and gas
operations consist of exploring for, developing and producing crude oil and
natural gas; transporting crude oil, natural gas and products by pipelines;
refining crude oil into finished petroleum products; and marketing crude oil,
natural gas and refined petroleum products. Chemical operations include the
manufacture and marketing of a wide range of chemicals for industrial uses.

Organization

     The Company was established in the PRC on February 25, 2000 as a joint
stock limited company as part of the reorganization (the "Reorganization") of
China Petrochemical Corporation ("Sinopec Group Company"), the ultimate holding
company of the Group and a ministry-level enterprise under the direct
supervision of the State Council of the PRC. Prior to the incorporation of the
Company, the oil and gas and chemical operations of the Group were carried on
by oil administration bureaux, petrochemical and refining production
enterprises and sales and marketing companies of Sinopec Group Company.

     As part of the Reorganization, certain of Sinopec Group Company's core oil
and gas and chemical operations and businesses together with the related assets
and liabilities that were to be transferred to the Company were segregated such
that the operations and businesses were separately managed beginning December
31, 1999. On February 25, 2000, in consideration for Sinopec Group Company
transferring such oil and gas and chemical operations and businesses and the
related assets and liabilities to the Company, the Company issued 68.8 billion
domestic state-owned ordinary shares with a par value of RMB 1.00 each to
Sinopec Group Company. The shares issued to Sinopec Group Company on February
25, 2000 represented the entire registered and issued share capital of the
Company at that date. The oil and gas and chemical operations and businesses
transferred to the Company related to (i) the exploration, development and
production of crude oil and natural gas, (ii) the refining, transportation,
storage and marketing of crude oil and petroleum products, and (iii) the
production and sale of chemicals (collectively the "Predecessor Operations").

Basis of presentation

      Pursuant to the resolution passed at the Extraordinary General Meeting
held on August 24, 2001, the Company acquired the entire equity interest of
Sinopec National Star Petroleum Company ("Sinopec National Star") from Sinopec
Group Company for a consideration of RMB 6.45 billion (hereinafter referred to
as the "Acquisition of Sinopec National Star").

      Pursuant to the resolution passed at the Directors' meeting on October
28, 2003, the Group acquired the equity interest of Sinopec Group Maoming
Petrochemical Company ("Sinopec Maoming") from Sinopec Group Company, for a
consideration of RMB 3.3 billion which was paid in 2004 (hereinafter referred
to as the "Acquisition of Ethylene Assets").

      Pursuant to the resolution passed at the Directors' meeting on December
29, 2003, the Group acquired the equity interest of Xi'an Petrochemical Main
Factory ("Xi'an Petrochemical") and Tahe Oilfield Petrochemical Factory ("Tahe
Petrochemical") from Sinopec Group Company, for considerations of RMB 221 and
RMB 135, respectively which was paid in 2004 (hereinafter referred to as the
"Acquisition of Refining Assets").

                                      F-9
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



         Pursuant to the resolutions passed at the Extraordinary General Meeting
held on December 21, 2004, the Group acquired the equity interest of Sinopec
Group Tianjin Petrochemical Company ("Tianjin Petrochemical"), Sinopec Group
Luoyang Petrochemical General Plant ("Luoyang Petrochemical"), Zhongyuan
Petrochemical Company, Ltd. ("Zhongyuan Petrochemical"), Sinopec Group Guangzhou
Petrochemical General Plant ("Guangzhou Petrochemical") and certain catalyst
plants ("Catalyst Plants") from Sinopec Group Company for a total consideration
of RMB 3,128 (hereinafter referred to as the "Acquisition of Petrochemical and
Catalyst Assets").

         As the Group, Sinopec National Star, Sinopec Maoming, Xi'an
Petrochemical, Tahe Petrochemical, Tianjin Petrochemical, Luoyang Petrochemical,
Zhongyuan Petrochemical, Guangzhou Petrochemical and Catalyst Plants are under
the common control of Sinopec Group Company, the Acquisition of Sinopec National
Star, the Acquisition of Ethylene Assets, the Acquisition of Refining Assets and
the Acquisition of Petrochemical and Catalyst Assets are considered as
"combination of entities under common control" which are accounted in a manner
similar to a pooling-of-interests ("as-if pooling-of-interests accounting").
Accordingly, the assets and liabilities acquired from Sinopec National Star,
Sinopec Maoming, Xi'an Petrochemical, Tahe Petrochemical, Tianjin Petrochemical,
Luoyang Petrochemical, Zhongyuan Petrochemical, Guangzhou Petrochemical and
Catalyst Plants have been accounted for at historical cost and the financial
statements of the Group for periods prior to the combination have been restated
to include the results of operations of Sinopec National Star, Sinopec Maoming,
Xi'an Petrochemical, Tahe Petrochemical, Tianjin Petrochemical, Luoyang
Petrochemical, Zhongyuan Petrochemical, Guangzhou Petrochemical and Catalyst
Plants on a combined basis. In connection with these acquisitions, certain
assets, primarily property, plant and equipment and construction in progress,
were retained by Sinpec Group Company. The assets retained by Sinopec Group
Company were reflected as a distribution in the shareholders' equity. The
considerations for these acquisitions were treated as equity transactions.

         The financial condition and results of operations previously reported
by the Group as of December 31, 2003 and for the years ended December 31, 2002
and 2003 have been restated to include the financial condition and results of
operations of Tianjin Petrochemical, Luoyang Petrochemical, Zhongyuan
Petrochemical, Guangzhou Petrochemical and Catalyst Plants (collectively the
"Acquired Group") as set out below.

                                         The Group
                                       without the     The Acquired
                                    Acquired Group            Group    Combined
                                    --------------            -----    --------
                                               RMB              RMB         RMB
2002

Results of operations:
      Operating revenue............        345,145           4,933      350,078
      Net income / (loss)..........         16,315             (19)      16,296
      Basic earnings per share.....           0.19              --         0.19



                                      F-10


<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)


                                         The Group
                                       without the     The Acquired
                                    Acquired Group            Group    Combined
                                    --------------            -----    --------

2003

Results of operations:
      Operating revenue..............      443,136           5,865      449,001
      Net income.....................       21,593             831       22,424
      Basic earnings per share.......         0.25            0.01         0.26

Financial condition:
      Current assets.................       99,328           3,711      103,039
      Total assets...................      400,818          19,366      420,184
      Current liabilities............      122,005           7,267      129,272
      Total liabilities..............      207,053          15,565      222,618
      Shareholders' equity...........      167,899           3,616      171,515

         For the years presented, all significant balances and transactions
between the Group and the Acquired Group have been eliminated.

         The accompanying consolidated financial statements have been prepared
in accordance with International Financial Reporting Standards ("IFRS")
promulgated by the International Accounting Standards Board. IFRS includes
International Accounting Standards ("IAS") and related interpretations.
Information relating to the nature and effect of the significant differences
between IFRS and accounting principles generally accepted in the United States
of America ("US GAAP") are set forth in Note 34.

         The accompanying consolidated financial statements are prepared on the
historical cost basis as modified by the revaluation of certain property, plant
and equipment (Note 15). The accounting policies described in Note 2 have been
consistently applied by the Group.

         The International Accounting Standards Board has issued a number of new
and revised IFRS and IAS ("new IFRS") which are effective for accounting periods
beginning on or after January 1, 2005. The Group has not early adopted these new
IFRS in the financial statements for the year ended December 31, 2004. The Group
has commenced an assessment of the impact of these new IFRS but is not yet in a
position to state whether these new IFRS would have a significant impact on its
results of operations and financial position.

         The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the year. Actual results could differ from those estimates.

         The accompanying consolidated financial statements are expressed in
Renminbi ("RMB"), the national currency of the PRC. Solely for the convenience
of the reader, the December 31, 2004 consolidated financial statements have been
translated into United States dollars at the noon buying rate in New York City
on December 31, 2004 for cable transfers in Renminbi as certified for customs
purposes by the Federal Reserve Bank of New York of US$ 1.00 = RMB 8.2765. No
representation is made that the Renminbi could have been, or could be, converted
into United States dollars at that rate or at any other certain rate on December
31, 2004, or at any other certain date.

                                      F-11
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



2.   PRINCIPAL ACCOUNTING POLICIES

(a)   Basis of consolidation

      The consolidated financial statements include the financial statements of
the Company and its subsidiaries. Subsidiaries are those entities controlled by
the Company. Control exists when the Company has the power, directly or
indirectly, to govern the financial and operating policies of an entity so as to
obtain benefits from its activities.

      The results of subsidiaries are included in the consolidated statements of
income from the date that control effectively commences until the date that
control effectively ceases, and the share attributable to minority interests is
deducted from or added to income before minority interests. All significant
inter-company balances and transactions and any unrealized gains arising from
inter-company transactions, are eliminated on consolidation.

      The particulars of the Group's principal subsidiaries are set out in
Note 32.


(b)   Translation of foreign currencies

      The functional and reporting currency of the Group is Renminbi. Foreign
currency transactions during the year are translated into Renminbi at the
applicable rates of exchange quoted by the People's Bank of China ("PBOC rates")
prevailing on the transaction dates. Foreign currency monetary assets and
liabilities are translated into Renminbi at the applicable PBOC rates at the
balance sheet date.

      Exchange differences, other than those capitalized as construction in
progress, are recognized as income or expenses in the consolidated statements of
income. There were no exchange differences capitalized for the years ended
December 31, 2002, 2003 and 2004.


(c)   Cash and cash equivalents

      Cash equivalents consist of time deposits with financial institutions with
an initial term of less than three months when purchased. Cash equivalents are
stated at cost, which approximates fair value.


(d)   Trade accounts receivable

      Trade accounts receivable are stated at cost less allowance for doubtful
accounts. An allowance for doubtful accounts is provided based upon the
evaluation of the recoverability of these accounts at the balance sheet date.


                                      F-12
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



(e)   Inventories

      Inventories, other than spare parts and consumables, are stated at the
lower of cost and net realizable value. Cost includes the cost of purchase
computed using the weighted average method and, in the case of work in progress
and finished goods, direct labor and an appropriate proportion of production
overheads. Net realizable value is the estimated selling price in the ordinary
course of business less the estimated costs of completion and the estimated
costs necessary to make the sale.

      Spare parts and consumables are stated at cost less any provision for
obsolescence.


(f)   Property, plant and equipment

      An item of property, plant and equipment is initially recorded at cost,
less accumulated depreciation and impairment losses. The cost of an asset
comprises its purchase price and any directly attributable costs of bringing the
asset to working condition and location for its intended use. Subsequent to the
revaluation (Note 15), which was based on depreciated replacement costs,
property, plant and equipment are carried at revalued amount, being the fair
value at the date of the revaluation less any subsequent accumulated
depreciation and impairment losses. Revaluations are performed periodically to
ensure that the carrying amount does not differ materially from that which would
be determined using fair value at the balance sheet date. Expenditure incurred
after the asset has been put into operation is capitalized only when it
increases the future economic benefits embodied in the item of property, plant
and equipment. All other expenditure is charged to the consolidated statements
of income in the year in which it is incurred.

      Gains or losses arising from the retirement or disposal of property, plant
and equipment, other than oil and gas properties, are determined as the
difference between the net disposal proceeds and the carrying amount of the
asset and are recognized as income or expense in the consolidated statements of
income on the date of retirement or disposal. On disposal of a revalued asset,
the related revaluation surplus is transferred from the revaluation reserve to
retained earnings.

      Depreciation is provided to write off the cost/revalued amount of each
asset, other than oil and gas properties, over its estimated useful life on a
straight-line basis, after taking into account its estimated residual value, as
follows:

     Buildings                                               15 to 45 years
     Plant, machinery, equipment and others                   4 to 18 years
     Service stations                                              25 years



                                      F-13
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



(g)   Oil and gas properties

      The Group uses the successful efforts method of accounting for its oil and
gas producing activities. Under this method, costs of development wells and the
related support equipment are capitalized. The cost of exploratory wells is
initially capitalized as construction in progress pending determination of
whether the well has found proved reserves. The impairment of exploratory well
costs occurs upon the determination that the well has not found proved reserves.
Exploratory wells that find oil and gas reserves in any area requiring major
capital expenditure are expensed unless the well has found a sufficient quantity
of reserves to justify its completion as a producing well if the required
capital expenditure is made, and drilling of the additional exploratory wells is
under way or firmly planned for the near future. However, in the absence of a
determination of the discovery of proved reserves, exploratory well costs are
not carried as an asset for more than one year following completion of drilling.
If, after one year has passed, a determination of the discovery of proved
reserves cannot be made, the exploratory well costs are impaired and charged to
expense. All other exploration costs, including geological and geophysical
costs, other dry hole costs and annual lease rentals, are expensed as incurred.
Capitalized costs relating to proved properties are amortized at the field level
on a unit-of-production method. The amortization rates are determined based on
oil and gas reserves estimated to be recoverable from existing facilities over
the shorter of the economic lives of crude oil and natural gas reservoirs and
the terms of the relevant production licenses.

      Gains and losses on the disposal of proved oil and gas properties are not
recognized unless the disposal encompasses an entire property. The proceeds on
such disposals are credited to the carrying amounts of oil and gas properties.


(h)   Lease prepayments

      Lease prepayments represent land use rights paid to the PRC's land bureau.
Land use rights are carried at cost and amortized on a straight-line basis over
the respective periods of the rights.


(i)   Construction in progress

      Construction in progress represents buildings, oil and gas properties,
various plant and equipment under construction and pending installation, and is
stated at cost less impairment losses. Cost comprises direct costs of
construction as well as interest charges, and foreign exchange differences on
related borrowed funds to the extent that they are regarded as an adjustment to
interest charges, during the periods of construction.

      Construction in progress is transferred to property, plant and equipment
when the asset is substantially ready for its intended use.

      No depreciation is provided in respect of construction in progress.


(j)   Investments

      Investments in unlisted equity securities are stated at cost less
provision for impairment losses. A provision is made where, in the opinion of
management, the carrying amount of the investments exceeds its recoverable
amount.

                                      F-14

<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



(k)   Interests in associates

      An associate is a company, not being a subsidiary, in which the Group
exercises significant influence over its management. Significant influence is
the power to participate in the financial and operating policy decisions of the
investee but is not control over those policies.

      The consolidated statements of income include the Group's share of the
results of its associates for the period. In the consolidated balance sheets,
interests in associates are stated at the Group's attributable share of net
assets.


(l)   Jointly controlled entities

      A jointly controlled entity is an entity over which the Group can exercise
joint control with other venturers. Joint control is the contractually agreed
sharing of control over an economic activity.

      The Group's interests in jointly controlled entities are accounted for on
a proportionate consolidation basis. Under this method, the Group combines its
proportionate share of the jointly controlled entity's operating revenues and
expenses with each major operating revenues and expenses caption of the Group's
statements of income and combines its proportionate share of the jointly
controlled entity's assets and liabilities with each major asset and liability
caption of the Group's balance sheet.


(m)  Provisions

      A provision is recognized in the consolidated balance sheets when the
Group has a legal or constructive obligation as a result of a past event, and it
is probable that an outflow of economic benefits will be required to settle the
obligation.


(n)   Revenue recognition

      Revenues associated with the sale of crude oil, natural gas, petroleum and
chemical products and ancillary materials are recorded when the customer accepts
the goods and the significant risks and rewards of ownership and title have been
transferred to the buyer. Revenue from the rendering of services is recognized
in the consolidated statements of income upon performance of the services. No
revenue is recognized if there are significant uncertainties regarding recovery
of the consideration due, the possible return of goods, or when the amount of
revenue and the costs incurred or to be incurred in respect of the transaction
cannot be measured reliably.

      Interest income is recognized on a time apportioned basis that takes into
account the effective yield on the asset.

      Gains arising from the issuance of shares by subsidiaries are recognized
in the consolidated statements of income. Further information is set out in
Note 9.


                                      F-15
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



(o)   Borrowing costs

      Borrowing costs are expensed in the consolidated statements of income in
the year in which they are incurred, except to the extent that they are
capitalized as being attributable to the construction of an asset which
necessarily takes a period of time to get ready for its intended use.


(p)   Repairs and maintenance expenditure

      Repairs and maintenance expenditure, including cost of major overhaul, is
expensed as incurred.


(q)   Environmental expenditures

      Environmental expenditures that relate to current ongoing operations or to
conditions caused by past operations are expensed as incurred.

      Liabilities related to future remediation costs are recorded when
environmental assessments and/or cleanups are probable and the costs can be
reasonably estimated. As facts concerning environmental contingencies become
known to the Group, the Group reassesses its position both with respect to
accrued liabilities and other potential exposures.


(r)   Research and development costs

      Research and development costs are recognized as expenses in the year in
which they are incurred. Research and development costs amounted to RMB 1,526,
RMB 2,122 and RMB 1,518 for the years ended December 31, 2002, 2003 and 2004,
respectively.


(s)   Operating leases

      Operating lease payments are charged to the consolidated statements of
income on a straight-line basis over the period of the respective leases.
Operating lease charges amounted to RMB 3,210, RMB 3,601 and RMB 4,288 for the
years ended December 31, 2002, 2003 and 2004, respectively.


(t)   Retirement benefits

      The contributions payable under the Group's retirement plans are charged
to the consolidated statements of income as incurred and according to the
contribution determined by the plans. Further information is set out in Note 30.


                                      F-16
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



(u)   Impairment loss

      The carrying amounts of long-lived assets are reviewed periodically in
order to assess whether the recoverable amounts have declined below the carrying
amounts. These assets are tested for impairment whenever events or changes in
circumstances indicate that their recorded carrying amounts may not be
recoverable. When such a decline has occurred, the carrying amount is reduced to
the recoverable amount. The recoverable amount is the greater of the net selling
price and the value in use. In determining the value in use, expected future
cash flows generated by the asset are discounted to their present value. The
amount of the reduction is recognized as an expense in the consolidated
statements of income unless the asset is carried at revalued amount for which an
impairment loss is recognized directly against any related revaluation reserve
to the extent that the impairment loss does not exceed the amount held in the
revaluation reserve for that same asset.

      The Group assesses at each balance sheet date whether there is any
indication that an impairment loss recognized for an asset in prior years may no
longer exist. An impairment loss is reversed if there has been a favorable
change in the estimates used to determine the recoverable amount. A subsequent
increase in the recoverable amount of an asset, when the circumstances and
events that led to the write-down or write-off cease to exist, is recognized as
income unless the asset is carried at revalued amount. Reversal of an impairment
loss on a revalued asset is credited to the revaluation reserve except for
impairment loss which was previously recognized as an expense in the
consolidated statements of income; a reversal of such impairment loss is
recognized as income. The reversal is reduced by the amount that would have been
recognized as depreciation had the write-down or write-off not occurred.


(v)   Income tax

      Income tax comprises current and deferred tax. Current tax is calculated
on taxable income by applying the applicable tax rates. Deferred tax is provided
using the balance sheet liability method on all temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. Deferred tax is calculated on the
basis of the enacted tax rates that are expected to apply in the period when the
asset is realized or the liability is settled.

      The tax value of losses expected to be available for utilization against
future taxable income is set off against the deferred tax liability within the
same legal tax unit and jurisdiction to the extent appropriate, and is not
available for set-off against the taxable profit of another legal tax unit.
Deferred tax assets are reduced to the extent that it is no longer probable that
the related tax benefit will be realized.


(w)   Dividends

      Dividends are recognized as a liability in the period in which they are
declared.


(x)   Segmental reporting

      A business segment is a distinguishable component of the Group that is
engaged in providing products or services and is subject to risks and rewards
that are different from those of other segments.


                                      F-17
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



3.   OTHER OPERATING REVENUES

     Other operating revenues represent:

                                                    Years ended December 31,
                                                 -------------------------------
                                                    2002       2003       2004
                                                   ------     ------     ------
                                                      RMB        RMB       RMB
Sale of materials, service and others........      15,850     18,653     22,213
Rental income................................         355        399        373
                                                   ------     ------     ------
                                                   16,205     19,052     22,586
                                                   ======     ======     ======


4.   PERSONNEL EXPENSES

      Personnel expenses represent:

                                                   Years ended December 31,
                                                    2002       2003      2004
                                                   ------     ------    ------
                                                    RMB         RMB       RMB
Wages and salaries...........................     10,820      12,468    13,589
Staff welfare................................      1,501       1,624     1,772
Contribution to retirement schemes...........      1,726       1,882     2,242
Social security contributions................        977         998     1,031
                                                  ------      ------     ------
                                                  15,024      16,972    18,634
                                                  ======      ======    ======


5.    EMPLOYEE REDUCTION EXPENSES

      During the year ended December 31, 2002, in connection with the assets
swap agreement between the Company and Sinopec Group Company (Note 29), the
Company made payments of RMB 244 relating to approximately 11,000 employees
that were transferred to Sinopec Group Company.

      During the year ended December 31, 2003, in accordance with the Group's
voluntary employee reduction plan, the Group recorded employee reduction
expenses of RMB 1,040 relating to the reduction of approximately 21,500
employees.

      During the year ended December 31, 2004, in accordance with the Group's
voluntary employee reduction plan, and in connection with the Acquisition of
Petrochemical and Catalyst Assets from and Disposal of Downhole Assets to
Sinopec Group Company, the Group recorded employee reduction expenses of RMB
919 relating to the reduction of approximately 24,000 employees.



                                      F-18

<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



6.   TAXES OTHER THAN INCOME TAX

      Taxes other than income tax represent:

                                                   Years ended December 31,
                                                -----------------------------
                                                  2002       2003        2004
                                                ------     ------      ------
                                                   RMB        RMB        RMB
Consumption tax............................      8,851      9,898      11,920
City construction tax......................      1,694      2,078       2,533
Education surcharge........................        806        995       1,255
Resources tax..............................        499        434         452
Business tax...............................        165        176         164
                                                ------     ------      ------
                                                12,015     13,581      16,324
                                                ======     ======      ======

      Consumption tax is levied on producers of gasoline and diesel based on a
tariff rate applied to the volume of sales. City construction tax is levied on
an entity based on its total amount of value-added tax, consumption tax and
business tax.

7.   OTHER OPERATING EXPENSES, NET

     Other operating expenses, net represent:

                                                   Years ended December 31,
                                                -----------------------------
                                                  2002       2003        2004
                                                ------     ------      ------
                                                   RMB        RMB        RMB
Fines, penalties and compensations...........       76        165        277
Donations....................................       80        152        290
Loss on disposal of property,
   plant and equipment, net..................      806      2,238      1,686
Impairment losses on long-lived assets.......       --        877      3,919
Others.......................................      222        543        494
                                                 -----      -----      -----
                                                 1,184      3,975      6,666
                                                 =====      =====      =====


Asset impairment

      There were no impairment losses or reversal of impairment losses
recognized on long-lived assets for the years ended December 31, 2002.

      Impairment losses recognized on long-lived assets of the refining and
chemicals segment of RMB 114 and RMB 453, respectively, for the year ended
December 31, 2003, and RMB 14 and RMB 2,747, respectively, for the year ended
December 31, 2004 relate to certain refining and chemicals production
facilities that are held for use. The carrying values of these facilities were
written down to their recoverable values which were based on the asset held for
use model using the present value of estimated future cash flows. Amounts of
RMB 567 and RMB 2,052 for the years ended December 31, 2003 and 2004,
respectively, were charged to the income statement with the remaining amount of
RMB 709 for the year ended December 31, 2004 in the chemicals segment
recognized directly against the related revaluation reserve in respect of those
assets that were carried at revalued amount. The primary factor resulting in
the impairment losses of the chemicals segment was due to higher operating and
production costs caused by the increase in the prices of raw materials that are
not expected to be recovered through an increase in selling price.

      Impairment losses recognized on long-lived assets of the marketing and
distribution segment of RMB 1,769 for the year ended December 31, 2004
primarily relate to certain service stations that were closed


                                      F-19
<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



during the year. In measuring the amounts of impairment charges, the carrying
amounts of these assets were compared to the present value of the expected
future cash flows of the assets, as well as information about sales and
purchases of similar properties in the same geographic area.

      The factors resulting in the exploration and production ("E&P") segment
impairment losses of RMB 310 and RMB 98 for the year ended December 31, 2003
and 2004, respectively, were unsuccessful development drilling and high
operating and development costs for certain oil fields. The carrying values of
these E&P properties were written down to a recoverable value which was
determined based on the present values of the expected future cash flows of the
assets. The oil and gas pricing was a factor used in the determination of the
present values of the expected future cash flows of the assets and had an
impact on the recognition of the asset impairment.

8.    INTEREST EXPENSE

      Interest expense represents:

                                                     Years ended December 31,
                                                  -----------------------------
                                                    2002       2003        2004
                                                  ------     ------      ------
                                                     RMB        RMB        RMB
Interest expense incurred.....................     5,866      5,316       5,491
Less: Interest expense capitalized*...........      (934)      (951)       (908)
                                                  ------     ------      ------
                                                   4,932      4,365       4,583
                                                  ======     ======      ======

* Interest rates per annum at which
  borrowing costs were capitalized
  for construction in progress...............    3.1% to    3.1% to      3.1% to
                                                   6.2%       6.1%         6.0%
                                                  ======     ======      ======


9.    GAIN FROM ISSUANCE OF SHARES BY A SUBSIDIARY

      The gain for the year ended December 31, 2003 represents the increase
in the Company's share of net assets of a subsidiary after the sale of
additional shares by the subsidiary.

<TABLE>
<CAPTION>
                                                                                           Percentage of
                                                                                             ownership
                                                       No. of     Price     Amount       -------------------
                        Principal         Type of      shares     per       of gross       before     After
  Nature of company     activities     transactions    issued     share     proceeds     issuance   issuance     Gains
---------------------------------------------------------------------------------------------------------------------------
                                                                  RMB        RMB                                  RMB
<S>                   <C>               <C>          <C>          <C>         <C>         <C>         <C>         <C>
                      Exploration
                      and
Sinopec Zhongyuan     production of
Petroleum Company     crude oil and     Placement
Limited               natural gas      of A shares   58,650,000   9.10        534         75.00%      70.85%      136

</TABLE>


10.   INCOME TAX

      Income tax in the consolidated statements of income represents:

                                                   Years ended December 31,
                                                 -----------------------------
                                                  2002       2003        2004
                                                 -----      ------     ------
                                                   RMB        RMB        RMB
Provision for PRC income tax
     - the Group..............................   6,574      10,868     18,195
     - associates.............................      50         148        340
Deferred taxation (Note 20)...................     867       (371)      (720)
                                                 -----      ------     ------
                                                 7,491      10,645     17,815
                                                 =====      ======     ======

                                      F-20
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)


<TABLE>
     A reconciliation of the expected tax with the actual tax expense is as follows:
<CAPTION>

                                                                           Years ended December 31,
                                                                         -----------------------------
                                                                          2002       2003        2004
                                                                         -----      ------     ------
                                                                           RMB        RMB        RMB
<S>                                                                     <C>         <C>        <C>
Income before income tax and minority interests.......................  24,916      35,041     59,606
                                                                        ======      ======     ======
Expected PRC income tax expense at a statutory tax rate of 33%........   8,222      11,564     19,670
Non-deductible expenses...............................................     274         639        812
Non-taxable income....................................................    (451)       (231)      (216)
Differential tax rate on subsidiaries' income (Note)..................    (496)     (1,232)    (2,408)
Tax losses not recognized for deferred tax............................     250         248        409
(Over)/under-provision in prior years.................................    (102)         79         94
Other.................................................................    (206)       (422)      (546)
                                                                         ------     -------    -------
Income tax............................................................   7,491      10,645     17,815
                                                                         ======     =======    =======
</TABLE>


      Substantially all income before income tax and related tax expense is from
PRC sources.

Note:    The provision for PRC current income tax is based on a statutory rate
         of 33% of the assessable income of the Group as determined in
         accordance with the relevant income tax rules and regulations of the
         PRC, except for certain subsidiaries of the Company, which are taxed
         at a preferential rate of 15%.

11.   BASIC EARNINGS PER SHARE

      The calculation of basic earnings per share is based on the net income of
RMB 16,296, RMB 22,424 and RMB 36,019 divided by the weighted average number of
shares in issue during the year of 86,702,439,000 for each of the years in the
three-year period ended December 31, 2004.

      The amount of diluted earnings per share is not presented as there were no
dilutive potential ordinary shares in existence for each of the years in the
three-year period ended December 31, 2004.

12.   TRADE ACCOUNTS RECEIVABLE, NET

      Trade accounts receivable are analyzed as follows:

                                                             December 31,
                                                         --------------------
                                                          2003         2004
                                                         -------      ------
                                                            RMB         RMB
Third parties.......................................       9,820      10,989
Sinopec Group Company and its affiliates............       2,928       2,349
Associates..........................................          81          89
                                                         -------     --------
                                                          12,829      13,427
Less: Allowance for doubtful accounts...............      (3,350)      (3,671)
                                                         -------     --------
                                                           9,479       9,756
                                                         =======     =======


                                      F-21
<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)

<TABLE>
     The allowance for doubtful accounts is analyzed as follows:
<CAPTION>

                                                                                Years ended December 31,
                                                                             -----------------------------
                                                                              2002        2003       2004
                                                                             ------      ------     ------
                                                                               RMB         RMB         RMB
<S>                                                                           <C>         <C>        <C>
At beginning of year...................................................       2,814       3,017      3,350
Provision for the year.................................................         574         939        935
Written-off/back.......................................................        (371)       (429)      (454)
Less:  Amount distributed to Sinopec Group Company in connection with
       the Acquisition of Ethylene Assets.............................           --        (177)        --
Less:  Amount distributed to Sinopec Group Company in connection with
       the Acquisition of Petrochemical and Catalyst Assets...........           --          --       (160)
                                                                             ------      ------     ------
At end of year.........................................................       3,017       3,350      3,671
                                                                             ======      ======     ======
</TABLE>

      Sales are generally on a cash term. Credit is generally only available for
major customers with well-established trading records. Amounts due from Sinopec
Group Company and its affiliates are repayable under the same terms.

13.   INVENTORIES

<TABLE>
      Inventories represent:
<CAPTION>
                                                                                 December 31,
                                                                            ----------------------
                                                                              2003         2004
                                                                             ------      ------
                                                                              RMB          RMB
<S>                                                                          <C>          <C>
Crude oil and other raw materials.......................................     24,295       32,562
Work in progress........................................................      7,040        8,341
Finished goods..........................................................     12,877       20,804
Spare parts and consumables.............................................      4,305        3,528
                                                                             ------      ------
                                                                             48,517       65,235
Less: Allowance for diminution in value of inventories..................      (601)        (906)
                                                                             ------      ------
                                                                             47,916      64,329
                                                                             ======      ======
</TABLE>


<TABLE>
     The allowance for diminution in value of inventories is analyzed as follows:
<CAPTION>
                                                                                Years ended December 31,
                                                                             -----------------------------
                                                                              2002        2003       2004
                                                                             ------      ------     ------
                                                                               RMB         RMB        RMB
<S>                                                                            <C>         <C>        <C>
At beginning of year...................................................        684         568        601
Provision for the year.................................................        172         196        648
Written-off/back.......................................................       (288)       (163)      (261)
Less:  Amount distributed to Sinopec Group Company in connection with
       the Acquisition of Petrochemical and Catalyst Assets............         --          --        (82)
                                                                             -----       -----      -----
At end of year.........................................................        568         601        906
                                                                             =====       =====      =====
</TABLE>

      The carrying amount of inventories carried at net realizable value
amounted to RMB 1,551 and RMB 1,624 as of December 31, 2003 and 2004,
respectively.

      The cost of inventories recognized as an expense in the consolidated
statements of income amounted to RMB 266,123, RMB 341,115 and RMB 474,961 for
the years ended December 31, 2002, 2003 and 2004, respectively.


                                      F-22
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)


14.   PREPAID EXPENSES AND OTHER CURRENT ASSETS

<TABLE>
      Prepaid expenses and other current assets represent:
<CAPTION>
                                                                                       December 31,
                                                                                   -------------------
                                                                                     2003        2004
                                                                                   ------       ------
                                                                                     RMB           RMB
<S>                                                                                 <C>          <C>
Advances to third parties........................................................   2,726        1,600
Amounts due from Sinopec Group Company and its affiliates........................   9,409        5,585
Other receivables................................................................   1,830        2,161
Purchase deposits................................................................   2,588        2,547
Prepayments in connection with construction work and equipment purchases.........   2,675        4,727
Prepaid value-added tax and customs duty.........................................   1,355        3,166
Amounts due from associates......................................................     331          308
                                                                                   ------       ------
                                                                                   20,914       20,094
                                                                                   ======       ======
</TABLE>

15.   PROPERTY, PLANT AND EQUIPMENT, NET

<TABLE>
By segment:
<CAPTION>

                                                      Exploration              Marketing               Corporate
                                                          and                     and                     and
                                                      production   Refining  distribution  Chemicals    others      Total
                                                      ----------   --------  ------------  ---------    -------     -----
                                                          RMB         RMB         RMB         RMB         RMB        RMB
Cost/valuation:
<S>                                                     <C>         <C>          <C>        <C>          <C>      <C>
Balance at January 1, 2004...........................   177,962     105,237      54,482     160,289      3,788    501,758
Additions............................................     1,402         793       1,555         314        169      4,233
Transferred from construction in progress............    17,428      13,489       9,283       9,460        304     49,964
Acquired from Sinopec Group Company (Note 29)........        --         805       1,536          --         --      2,341
Revaluation..........................................        --          35          --         206         16        257
Disposals............................................    (1,085)     (3,354)     (1,511)     (4,253)      (179)   (10,382)
Disposed to Sinopec Group Company (Note 29)..........    (3,631)         --          --          --         --     (3,631)

Less: Amount distributed to Sinopec Group Company in
      connection with the Acquisition of
      Petrochemical and Catalyst Assets..............        --         (95)         --      (2,794)        (6)    (2,895)
                                                        -------     -------      ------     -------     ------    -------
Balance at December 31, 2004.........................   192,076     116,910      65,345     163,222      4,092    541,645
                                                        -------     -------      ------     -------     ------    -------
Accumulated depreciation:
Balance at January 1, 2004...........................    84,604      50,901      10,014      84,285      1,223    231,027
Depreciation charge for the year.....................    12,042       7,594       2,624       9,156        289     31,705
Impairment losses for the year.......................        98          14       1,769       2,747         --      4,628
Acquired from Sinopec Group Company (Note 29)........        --         458          --          --         --        458
Written back on disposals............................      (942)     (2,323)       (942)     (3,157)      (103)    (7,467)
Disposed to Sinopec Group Company (Note 29)..........    (1,774)         --          --          --          --    (1,774)
Less: Amount distributed to Sinopec Group Company
      in connection with the Acquisition of
      Petrochemical and Catalyst Assets..............        --         (64)         --        (989)        (2)    (1,055)
Balance at December 31, 2004.........................    94,028      56,580      13,465      92,042      1,407    257,522
                                                         ------      ------      ------      ------      -----    -------
Net book value:
At December 31, 2004.................................    98,048      60,330      51,880      71,180      2,685    284,123
                                                         ======      ======      ======      ======      =====    =======

At December 31, 2003.................................    93,358      54,336      44,468      76,004      2,565    270,731
                                                         ======      ======      ======      ======      =====    =======
</TABLE>


                                      F-23
<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)

<TABLE>
By asset class:
<CAPTION>
                                                                                Oil depots,       Plant,
                                                                              storage tanks   machinery,
                                                                 O il and gas   and service    equipment
                                                       Buildings   properties      stations    and others      Total
                                                       ---------   ----------    ----------   -----------     --------
                                                          RMB        RMB            RMB            RMB          RMB
COST/VALUATION:
<S>                                                      <C>       <C>             <C>           <C>          <C>
Balance at January 1, 2004..........................     44,728    158,634         46,337        252,059      501,758
Additions...........................................        342        450          1,301          2,140        4,233
Transferred from construction in progress...........      2,357     17,428         12,461         17,718       49,964
Acquired from Sinopec Group Company (Note 29).......         --         --          1,533            808        2,341
Revaluation.........................................          1         --             --            256          257
Disposals...........................................       (927)      (586)        (1,099)        (7,770)     (10,382)
Disposed to Sinopec Group Company (Note 29).........        (97)    (2,362)            --         (1,172)      (3,631)
Less: Amount distributed to Sinopec Group Company
      in connection with the Acquisition of
      Petrochemical and Catalyst Assets.............     (1,550)        --             --         (1,345)      (2,895)
                                                         ------     ------         ------        -------      -------
Balance at December 31, 2004........................     44,854    173,564         60,533        262,694      541,645
                                                         ------     ------         ------        -------      -------
ACCUMULATED DEPRECIATION:
Balance at January 1, 2004..........................     18,975     77,582          8,785        125,685      231,027
Depreciation charge for the year....................      1,768      9,211          2,332         18,394       31,705
Impairment losses for the year......................        325         98          1,249          2,956        4,628
Acquired from Sinopec Group Company (Note 29).......         --         --             --            458          458
Written back on disposals...........................       (428)      (541)          (585)        (5,913)      (7,467)
Disposed to Sinopec Group Company (Note 29).........        (22)    (1,207)            --           (545)      (1,774)
Less: Amount distributed to Sinopec Group Company
      in connection with the Acquisition of
      Petrochemical and Catalyst Assets.............       (310)        --             --           (745)      (1,055)
                                                         ------     ------         ------        -------      -------
Balance at December 31, 2004........................     20,308     85,143         11,781        140,290      257,522
                                                         ------     ------         ------        -------      -------
NET BOOK VALUE:
At December 31, 2004................................     24,546     88,421         48,752        122,404      284,123
                                                         ======     ======         ======        =======      =======

At December 31, 2003................................     25,753     81,052         37,552        126,374      270,731
                                                         ======     ======         ======        =======      =======
</TABLE>

     As required by the relevant PRC regulations with respect to the
Reorganization, the property, plant and equipment of the Group as of September
30, 1999 were valued for each asset class by China United Assets Appraisal
Corporation, Beijing Zhong Zheng Appraisal Company, CIECC Assets Appraisal
Corporation and Zhong Fa International Properties Valuation Corporation,
independent valuers registered in the PRC, on a depreciated replacement cost
basis. The value of property, plant and equipment was determined at RMB
159,788. The surplus on revaluation of RMB 32,320, net of amounts allocated to
minority interests, was incorporated in the financial statements of the Group
at December 31, 1999.

     In connection with the Acquisition of Sinopec National Star, the property,
plant and equipment of Sinopec National Star were revalued at December 31,
2000, by a firm of independent valuers and approved by the Ministry of Finance.
The value of property, plant and equipment of Sinopec National Star pursuant to
the valuation, based on a depreciated replacement cost basis, was determined at
RMB 4,373, resulting in a surplus on revaluation of RMB 1,136, net of amounts
allocated to minority interest.

     In connection with the Acquisition of Ethylene Assets, the property, plant
and equipment of Sinopec Maoming were revalued at June 30, 2003, by a firm of
independent valuers in accordance with the relevant rules and regulations. The
value of property, plant and equipment of Sinopec Maoming pursuant to the
valuation, based on a depreciated replacement cost basis, was determined at RMB
5,100, which approximated the net historical carrying value of the assets.

                                      F-24
<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)


     In connection with the Acquisition of Refining Assets, the property, plant
and equipment of the Refining Assets were revalued at October 31, 2003, by a
firm of independent valuers in accordance with the relevant rules and
regulations. The value of property, plant and equipment of the Refining Assets
pursuant to the valuation, based on a depreciated replacement cost basis, was
determined at RMB 461, which approximated the net historical carrying value of
the assets.

     In connection with the Acquisition of Petrochemical and Catalyst Assets,
the property, plant and equipment of the Petrochemical and Catalyst Assets were
revalued at June 30, 2004, by a firm of independent valuers in accordance with
the relevant rules and regulations. The value of property, plant and equipment
of the Petrochemical and Catalyst Assets pursuant to the valuation, based on a
depreciated replacement cost basis, was determined at RMB 11,895, which
approximated the net historical carrying value of the assets.

     In accordance with IAS 16, subsequent to these revaluations, which was
based on depreciated replacement costs, property, plant and equipment are
carried at revalued amount, being the fair value at the date of the revaluation
less any subsequent accumulated depreciation and impairment losses. Revaluation
is performed periodically to ensure that the carrying amount does not differ
materially from that which would be determined using fair value at the balance
sheet date. Based on a revaluation performed as of December 31, 2004, which was
based on depreciated replacement costs, the carrying value of property, plant
and equipment did not differ materially from their fair value.

16.   CONSTRUCTION IN PROGRESS

<TABLE>
<CAPTION>
                                                  Exploration            Marketing              Corporate
                                                     and                    and                    and
                                                  production  Refining  distribution  Chemicals   others     Total
                                                  ----------  --------  ------------  ---------   ------     -----
                                                     RMB          RMB        RMB         RMB        RMB       RMB
<S>                                                  <C>         <C>        <C>        <C>          <C>     <C>
Balance at January 1, 2004.....................      5,535       8,470      7,941      6,957        451     29,354
Additions......................................     22,808      13,479     15,123     10,711      1,381     63,502
Additions of jointly controlled entities.......      1,323          --         --      5,178         --      6,501
Less: Amount distributed to Sinopec Group
      Company in connection with the Acquisition
      of Petrochemical and Catalyst Assets.....         --          (1)                 (216)       (15)      (232)
Dry hole costs written off.....................     (2,976)         --         --         --         --     (2,976)
Transferred to property, plant and equipment...    (17,428)    (13,489)    (9,283)    (9,460)      (304)   (49,964)
                                                   -------     -------    -------    --------    -------   --------
Balance at December 31, 2004...................      9,262       8,459     13,781     13,170      1,513     46,185
                                                   =======     =======    =======    ========    =======   ========
</TABLE>

      The Group's proportionate share of the jointly controlled entities'
construction in progress in the E&P and the chemicals segments reflected in the
above table were RMB 3,812 and RMB 2,993, respectively, as of December 31,
2003, and RMB 2,053 and RMB 8,171, respectively, as of December 31, 2004.

      Net changes in capitalized cost of exploratory wells included in the
Group's construction in progress in the E&P segment are analyzed as follows:

<TABLE>
<CAPTION>
                                                                                Years ended December 31,
                                                                            --------------------------------
                                                                             2002          2003        2004
                                                                            -------      -------     ------=
                                                                              RMB           RMB         RMB
<S>                                                                          <C>          <C>         <C>
At beginning of year...................................................      1,471        2,395       2,438
Additions to capitalized cost of exploratory wells pending the
     determination of proved reserves..................................      4,134        4,675       4,870
Transferred to oil and gas properties based on the determination of
     proved reserves...................................................     (1,439)      (1,843)     (1,434)
Dry hole costs written off.............................................     (1,771)      (2,789)     (2,976)
                                                                            -------      -------     ------=
At end of year.........................................................      2,395        2,438       2,898
                                                                            =======      =======     ======
</TABLE>


                                      F-25
<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



17.   INVESTMENTS

                                                                December 31,
                                                             ------------------
                                                              2003        2004
                                                             -----        -----
                                                              RMB          RMB
Unlisted investments, at cost............................    3,041        2,891
Less: Provision for impairment losses....................    (332)        (353)
                                                             -----        -----
                                                             2,709        2,538
                                                             =====        =====
<TABLE>
Provision for impairment losses is analyzed as follows:
<CAPTION>

                                                               Years ended December 31,
                                                            -------------------------------
                                                             2002         2003        2004
                                                            ------      ------       ------
                                                              RMB         RMB         RMB
<S>                                                           <C>         <C>         <C>
At beginning of year.....................................     545         553         332
Provision for the year...................................      13         131          96
Written-off..............................................      (5)        (62)        (14)
Less:  Amount distributed to Sinopec Group
       Company in connection with the
       Acquisition of Ethylene Assets....................      --        (290)         --
Less:  Amount distributed to Sinopec
       Group Company in connection with
       the Acquisition of Petrochemical
       and Catalyst Assets...............................      --          --         (61)
                                                            ------      ------       ------
At end of year ..........................................     553         332          353
                                                            ======      ======       ======
</TABLE>

      Unlisted investments represent the Group's interests in PRC domiciled
enterprises which are mainly engaged in non-oil and gas activities and
operations. The Group has no significant investments in marketable securities.

18.   INTERESTS IN ASSOCIATES

                                                              December 31,
                                                         ----------------------
                                                           2003          2004
                                                          -----         ------
                                                           RMB             RMB

Share of net assets                                       8,121         10,222
                                                          -----         ------

     The Group's investments in associates are with companies primarily engaged
in the oil and gas and chemical operations in the PRC. These investments are
individually and in the aggregate not material to the Group's financial
condition or results of operations for all periods presented. The principal
investments in associates, all of which are incorporated in the PRC, are as
follows:

                                      F-26
<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)


<TABLE>
<CAPTION>
                                                                                 Percentage   Percentage of
                                                                                 of equity    equity held
                                       Form of                                    held by         by the
                                       business         Particulars of issued      the         Company's
      Name of company                 structure          and paid up capital      Company     subsidiaries  Principal activities
      ---------------                 ---------          -------------------      -------     ------------  --------------------
                                                                                      %             %
<S>                                   <C>               <C>                         <C>             <C>    <C>
 Shengli Oil Field Dynamic            Incorporated      364,027,608 ordinary        26.33           --     Exploration of crude oil
Company Limited ("Dynamic")*                           shares of RMB 1.00 each                             and distribution of
                                                                                                           petrochemical products

 Sinopec Shandong Taishan             Incorporated      480,793,320 ordinary        38.68           --     Trading of petroleum
Petroleum Company Limited                              shares of RMB 1.00 each                             products and decoration
    ("Taishan")*                                                                                           of service gas stations


Sinopec Finance Company Limited       Incorporated       Registered capital         32.00          8.22    Provision of non-banking
                                                          RMB 2,500,000,000                                financial services

Shanghai Petroleum National Gas       Incorporated       Registered capital         30.00           --     Exploration and
   Corporation                                             RMB 900,000,000                                 production of crude
                                                                                                           oil and natural gas

BASF-YPC Company Limited              Incorporated       Registered capital         30.00         10.00    Manufacturing and
                                                          RMB 8,793,000,000                                distribution of
                                                                                                           petrochemical
                                                                                                           products

Shanghai Chemical Industry Park       Incorporated       Registered capital           --          38.26    Planning, development
 Development Company Limited                              RMB 2,372,439,000                                and operation of
                                                                                                           the Chemical
                                                                                                           Industry Park in
                                                                                                           Shanghai, the PRC

 China Shipping & Sinopec             Incorporated       Registered capital           --          50.00    Transportation of
Suppliers Company Limited                                  RMB 876,660,000                                 petroleum products

</TABLE>

     * Shares of Dynamic and Taishan are listed on the Shenzhen Stock Exchange.
Shares held by the Company are domestic state-owned A shares which are not
admitted for trading in any stock exchange in the PRC. The market value of the
investments in Dynamic based on the quoted market price are RMB 783 and RMB 479
as of December 31, 2003 and 2004, respectively. The market value of the
investments in Taishan based on the quoted market price are RMB 1,971 and RMB
1,516 as of December 31, 2003 and 2004, respectively.

19.   INTERESTS IN JOINTLY CONTROLLED ENTITIES

                                                               December 31,
                                                             ------------------
                                                              2003         2004
                                                             -----        -----
                                                              RMB          RMB

Share of net assets.................................         1,043        3,568
                                                             =====        =====

     The Group's investments in jointly controlled entities are primarily
engaged in the oil and gas and chemical operations in the PRC, the principal
interests in jointly controlled entities are as follows:

<TABLE>
<CAPTION>
                                                                                     Percentage of
                                                                        Percentage    equity held
                                  Form of          Particulars of       of equity       by the
                                  business           issued and         held by the    Company's
       Name of company            structure        paid up capital       Company     subsidiaries   Principal activities
       ---------------            ---------        ---------------       -------     ------------   --------------------
                                                                           %            %
<S>                               <C>              <C>                    <C>         <C>           <C>
Shanghai Secco Petrochemical      Incorporated     Registered capital     30.00       20.00         Manufacturing and distribution
    Company Limited                                 USD 901,440,964                                 of petrochemical products

Yueyang Sinopec and Shell         Incorporated     Registered capital     50.00          -          Manufacturing and distribution
  Coal  Gasification                                 USD 45,588,700                                 of industrial gas
  Company Limited

Block A Oil Field in the         Unincorporated            -                 -        43.00         Exploration and production
 Western  Area Chengda                                                                              of crude oil and natural gas
   in Bohai Bay
</TABLE>

         The Group's proportionate share of the jointly controlled entities'
current and non-current assets, current and non-current liabilities, and
operating revenues and expenses is not material to the Group's financial
condition or results of operations for all years presented.


                                      F-27
<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



20.   DEFERRED TAX ASSETS AND LIABILITIES

<TABLE>
      Deferred tax assets and deferred tax liabilities are attributable to the
items detailed in the table below:
<CAPTION>

                                                             Assets             Liabilities           Net balance
                                                             ------             -----------           -----------
                                                           December 31,         December 31,          December 31,
                                                         ----------------    ------------------    ------------------
                                                          2003      2004       2003       2004      2003       2004
                                                         -----      -----    ------      ------    ------      ------
                                                          RMB        RMB       RMB         RMB       RMB        RMB
<S>                                                      <C>        <C>      <C>         <C>       <C>         <C>
Current
Provisions, primarily for receivables and inventories    1,446      2,528        --          --     1,446      2,528
Non-current
Property, plant and equipment........................      272      1,566      (981)     (1,704)     (709)      (138)
Accelerated depreciation.............................       --         --    (3,618)     (3,932)   (3,618)    (3,932)
Tax value of losses carried forward, net of
    valuation allowance..............................      923         66        --          --       923         66
Lease prepayment (Note i) ...........................      373        366        --          --       373        366
Others...............................................       53         32        --          --        53         32
                                                         -----      -----    ------      ------    ------     ------
Deferred tax assets/(liabilities) ...................    3,067      4,558    (4,599)     (5,636)   (1,532)    (1,078)
                                                         =====      =====    ======      ======    ======     ======
</TABLE>

      A valuation allowance on deferred tax assets is recorded if it is more
likely than not that some portion or all of the deferred tax assets will not be
realized through the recovery of taxes previously paid and/or future taxable
income. The allowance is subject to ongoing adjustments based on changes in
circumstances that affect the Group's assessment of the realizability of the
deferred tax assets. The Group has reviewed its deferred tax assets as of
December 31, 2002, 2003 and 2004. Based on this review, valuation allowances of
RMB 250, RMB 248 and RMB 409 were provided for the years ended December 31,
2002, 2003 and 2004, respectively. The Group determined the valuation allowance
based on management's assessment of the probability that taxable profits will
be available over the period which the deferred tax assets can be realized or
utilized. In assessing the probability, both positive and negative evidence was
considered, including whether it is more likely than not that the operations
will have future taxable profits over the periods which the deferred tax assets
are deductible or utilized and whether the tax losses result from identifiable
causes which are unlikely to recur. Based on this assessment, a valuation
allowance was provided to reduce the deferred tax asset to the amount that is
more likely than not to be realized.

<TABLE>
      The valuation allowance is analyzed as follows:
<CAPTION>
                                                                          Years ended December 31,
                                                                      --------------------------------
                                                                       2002        2003         2004
                                                                      ------      ------       ------
                                                                       RMB          RMB         RMB
<S>                                                                    <C>          <C>         <C>
At beginning of year................................................   693          943         641
Allowance during the year...........................................   250          248         409
Less:  Amount distributed to Sinopec Group Company in
       connection with the Acquisition of Ethylene Assets...........    --         (550)         --
                                                                      ------      ------      -------
At end of year .....................................................   943          641       1,050
                                                                      ======      ======      =======
</TABLE>

      As of December 31, 2004, certain subsidiaries of the Company had tax
value of losses carried forward for PRC income tax purpose of RMB 3,382 which
were available to offset future PRC taxable income of respective subsidiaries,
if any. RMB 264, RMB 561, RMB 567, RMB 751, and RMB 1,239 expire in 2005, 2006,
2007, 2008, and 2009, respectively.

                                     F-28
<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)


<TABLE>
         Movements in temporary differences between calculations of certain
items for accounting and for taxation purposes can be specified as follows:
<CAPTION>
                                                                                                      Recognized in
                                                                                    Recognized in      consolidated
                                                                     Balance at     consolidated      statements of    Balance at
                                                                     January 1,     statements of     shareholders'   December 31,
                                                                        2002           income            equity           2002
                                                                        ----           ------            ------           ----
                                                                         RMB             RMB               RMB             RMB
Current
<S>                                                                       <C>           <C>                  <C>           <C>
Provisions, primarily for receivables and inventories..............       432           (157)                --            275
Non-current
Property, plant and equipment......................................      (753)            173                --           (580)
Accelerated depreciation...........................................    (2,185)           (773)               --         (2,958)
Tax value of losses carried forward, net of valuation allowance....       962              16                --            978
Lease prepayments (Note i).........................................        --              (7)              371            364
Others.............................................................       121            (119)               --              2
                                                                       ------          ------            ------         ------
Net deferred tax (liabilities)/assets..............................    (1,423)           (867)              371         (1,919)
                                                                       ======          ======            ======         ======
                                                                                     (Note 10)

                                                                                                     Recognized in
                                                                                   Recognized in     consolidated
                                                                     Balance at    consolidated      statements of    Balance at
                                                                     January 1,    statements of     shareholders'    December 31,
                                                                        2003          income            equity           2003
                                                                        ----          ------            ------           ----
                                                                         RMB            RMB               RMB            RMB
Current
Provisions, primarily for receivables and inventories.                    275          1,171               --            1,446
Non-current
Property, plant and equipment..........................                  (580)          (129)              --             (709)
Accelerated depreciation...............................                (2,958)          (660)              --           (3,618)
Tax value of losses carried forward, net of valuation
    allowance..........................................                   978            (55)              --              923
Lease prepayments (Note i).............................                   364             (7)              16              373
Others.................................................                     2             51               --               53
                                                                       ------          ------            ------         ------
Net deferred tax (liabilities)/assets..................                (1,919)           371               16           (1,532)
                                                                       ======          ======            ======         ======
                                                                                    (Note 10)


                                                                                                     Recognized in
                                                                                   Recognized in     consolidated
                                                                     Balance at    consolidated      statements of    Balance at
                                                                     January 1,    statements of     shareholders'    December 31,
                                                                        2004          income            equity           2004
                                                                        ----          ------            ------           ----
                                                                         RMB            RMB               RMB            RMB
Current
Provisions, primarily for receivables and inventories.                  1,446          1,082               --           2,528
Non-current
Property, plant and equipment..........................                  (709)           571               --            (138)
Accelerated depreciation...............................                (3,618)          (314)              --          (3,932)
Tax value of losses carried forward, net of valuation
    allowance (Note ii)................................                   923           (591)            (266)             66
Lease prepayments (Note i).............................                   373             (7)              --             366
Others.................................................                    53            (21)              --              32
                                                                       ------          ------           ------         ------
Net deferred tax (liabilities)/assets..................                (1,532)           720             (266)         (1,078)
                                                                       ======          ======           ======         ======
                                                                                    (Note 10)
</TABLE>


                                     F-29
<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)

     Note:

     (i)   Land use rights are carried at cost effective January 1, 2002. The
           effect of this change resulted in a decrease in the revaluation
           reserve and an increase in other reserves relating to the
           recognition of the deferred tax asset of RMB 371 as of January 1,
           2002. During the year ended December 31, 2003, in connection with
           the Acquisition of Refining Assets, the land use rights of the
           Refining Assets were revalued resulting in a surplus of RMB 66 as
           required by the relevant PRC rules and regulations but were not
           revalued for financial reporting purposes and, accordingly, deferred
           tax assets of RMB 16 were created with corresponding increase in
           other reserves.

     (ii)  As of December 31, 2004, deferred tax assets of RMB 266 were
           distributed to Sinopec Group Company in connection with the
           Acquisition of Petrochemical and Catalyst Assets.

21.   LONG-TERM PREPAYMENTS AND OTHER ASSETS

      Long-term prepayments and other assets primarily represent prepaid rental
expenses over one year, computer software and catalysts.

22.   SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP
      COMPANY AND ITS AFFILIATES

      Short-term debts represent:

                                                                December 31,
                                                             ------------------
                                                              2003         2004
                                                             ------      ------
                                                               RMB         RMB
THIRD PARTIES' DEBTS
Short-term bank loans...................................     19,961      20,009
Short-term other loans..................................         29           -
                                                             ------      ------
                                                             19,990      20,009
Current portion of long-term bank loans.................      7,359      12,177
Current portion of long-term other loans................        332         121
Current portion of convertible bonds....................      1,500           -
                                                             ------      ------
                                                              9,191      12,298
                                                             ------      ------
                                                             29,181      32,307
                                                             ------      ------
LOANS FROM SINOPEC GROUP COMPANY AND ITS AFFILIATES
Short-term loans........................................      4,046       6,714
Current portion of long-term loans......................        819       2,000
                                                              4,865       8,714
                                                             ------      ------
                                                             34,046      41,021
                                                             ======      ======

     The Group's weighted average interest rates on short-term loans were 3.2%
and 3.9% as of December 31, 2003 and 2004, respectively.

     As of December 31, 2003, the Company had standby credit facilities with
several PRC financial institutions which allowed the Company to borrow up to
RMB 103,500 on an unsecured basis, at rates ranging from 1.65% to 5.31%. As of
December 31, 2003, the Company's outstanding borrowings under these facilities
totaling RMB 11,970 which are included in short-term bank loans. These
facilities expire at various dates in 2004 and contain no financial covenants.

     As of December 31, 2004, the Company had standby credit facilities with
several PRC financial institutions which allowed the Company to borrow up to
RMB 107,000 on an unsecured basis, at rates ranging from 2.95% to 4.54%. As of
December 31, 2004, the Company's outstanding borrowings under these facilities
totaling RMB 6,203 which are included in short-term bank loans. These
facilities expire at various dates in 2005 and contain no financial covenants.

                                     F-30
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)

<TABLE>
     Long-term debts comprise:
<CAPTION>

                                            Interest rate and final maturity                     December  31,
                                       ---------------------------------------------        -------------------------
                                                                                              2003             2004
                                                                                            ------           ------
                                                                                               RMB             RMB
<S>                                    <C>                                                   <C>              <C>
THIRD PARTIES' DEBTS

LONG-TERM BANK LOANS

Renminbi denominated                   Interest rates ranging from interest free
                                       to 6.2% per annum as of December 31, 2004
                                       with maturities through 2013                         40,955           52,227

Japanese Yen denominated               Interest rates ranging from
                                       2.6% to 5.8% per annum as of
                                       December 31, 2004 with maturities
                                       through 2024                                          4,841            4,562

US Dollar denominated                  Interest rates ranging from interest
                                       free to 7.4% per annum as
                                       of December 31, 2004 with
                                       maturities through 2031                               7,563            7,729

Euro denominated                       Fixed interest rate at 6.7% per annum at
                                       December 31, 2004 with maturities through 2010          547              165

Hong Kong Dollar                       Floating rate at Hong Kong Prime
 denominated                           Rate plus 0.3% per annum
                                       as of December 31, 2004 with
                                       maturities through 2006                                   7                5
                                                                                            ------           ------
                                                                                            53,913           64,688
                                                                                            ======           ======

LONG-TERM OTHER LOANS

Renminbi denominated                   Interest rates ranging from interest free
                                       to 5.0% per annum as of December 31, 2004
                                       with maturities through 2008                            413         359

US Dollar denominated                  Interest rates ranging from
                                       interest free to 4% per annum
                                       as of December 31, 2004 with
                                       maturities through 2015                                 151         110

Euro denominated                       Interest rates ranging from 1.8%
                                       to 8.1% per annum as of December
                                       31, 2003 with maturities through 2025;
                                       paid off as of December 31, 2004                         21           --
                                                                                            ------       ------
                                                                                               585         469
                                                                                            ======       ======

CONVERTIBLE BONDS

Renminbi denominated                   Interest rate at 2.5% per annum as of December
                                       31, 2003 with maturity in July 2004 (a)               1,500           --
                                                                                            ======       ======

Total long-term banks and other loans carried forward                                       55,998      65,157

</TABLE>


                                     F-31
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)


<TABLE>
<CAPTION>
                                            Interest rate and final maturity                     December  31,
                                       ---------------------------------------------        -------------------------
                                                                                              2003             2004
                                                                                            ------           ------
                                                                                               RMB             RMB
<S>                                    <C>                                                   <C>              <C>

Total long-term banks and other loans carried forward                                       55,998           65,157

CORPORATE BONDS

Renminbi denominated               Fixed interest rate at 4.61% per annum as of
                                   December 31, 2004 with maturity in February 2014 (b)         --            3,500
                                                                                            ------           ------

LONG-TERM BANK LOANS OF JOINTLY CONTROLLED ENTITIES

Renminbi denominated               Floating rate at 90% of PBOC's base lending
                                   rate per annum as of December 31, 2004
                                   with maturities through 2021                                705            2,415

US Dollar denominated              Floating rate at London Interbank Offer
                                   Rate plus 0.7% per annum as of December 31,
                                   2004 with maturities through 2021                           745            2,048
                                                                                            ------           ------
                                                                                             1,450            4,463
                                                                                            ======           ======

TOTAL THIRD PARTIES' LONG-TERM DEBTS                                                        57,448           73,120

Less: Current portion                                                                       (9,191)         (12,298)
                                                                                            ------           ------
                                                                                            48,257           60,822
                                                                                            ======           ======
LONG-TERM LOANS FROM SINOPEC GROUP COMPANY AND ITS AFFILIATES

Renminbi denominated               Interest free with maturity in 2020                      35,561           35,561

Renminbi denominated               Interest  rates  ranging from interest free to 5.2%
                                   per annum as of December  31, 2004 with  maturities
                                   through 2009                                              4,285            3,204

US Dollar denominated              Floating rates at London Interbank Offer Rate plus
                                   1.4% per annum as of December 31, 2003 with
                                   maturities through 2005; paid off as of December
                                   31, 2004                                                     12               --
                                                                                            ------           ------

                                                                                            39,858           38,765
                                                                                            ------           ------
Less: Current portion                                                                         (819)          (2,000)
                                                                                            39,039           36,765
                                                                                            ------           ------
                                                                                            87,296           97,587
                                                                                            ======           ======
</TABLE>

(a)  Convertible bonds amounting to RMB 1,500 were issued by a subsidiary on
     July 28, 1999. Pursuant to the subsidiary's shareholders' approval at the
     Annual General Meeting held on March 23, 2004, the subsidiary decided not
     to undergo an initial public offering. The bonds were repaid in July 2004.

(b)  The Company issued ten years corporate bonds of RMB 3,500 to PRC citizens
     as well as PRC legal and non-legal persons on February 24, 2004,
     guaranteed by Sinopec Group Company, with a fixed interest rate at 4.61%
     per annum.

     Third parties' loans of RMB 103 and RMB 40 as of December 31, 2003 and
2004, respectively, were secured by certain of the Group's property, plant and
equipment. The net book value of property, plant and equipment of the Group
pledged as security amounted to RMB 519 and RMB 123 as of December 31, 2003 and
2004, respectively.

                                     F-32
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



     The aggregate maturities of long-term debts and loans from Sinopec Group
Company and its affiliates subsequent to December 31, 2004 are as follows:
                                                                         RMB
2005................................................................   14,298
2006................................................................   15,886
2007................................................................   21,233
2008................................................................    7,832
2009................................................................    6,976
Thereafter..........................................................   45,660
                                                                      111,885

23.   TRADE ACCOUNTS PAYABLE

     Trade accounts payable are analyzed as follows:

                                                               December 31,
                                                            --------------------
                                                             2003        2004
                                                             ------     ------
                                                              RMB        RMB
Third parties............................................    22,122     22,265
Sinopec Group Company and its affiliates.................     1,153      1,527
Associates...............................................        44         --
                                                             ------     ------
                                                             23,319     23,792
                                                             ======     ======

      Amounts due to Sinopec Group Company and its affiliates are repayable in
accordance with normal commercial terms.

24.   ACCRUED EXPENSES AND OTHER PAYABLES

      Accrued expenses and other payables represent:

                                                                December  31,
                                                              ------------------
                                                                2003      2004
                                                              ------     ------
                                                                 RMB       RMB
Amounts due to Sinopec Group Company and its affiliates....   15,072     10,897
Accrued expenditures.......................................   12,208     17,213
Taxes other than income tax................................    4,327      3,717
Receipts in advance........................................    5,509      7,387
Advances from third parties................................      979      1,009
Others.....................................................    5,466      5,053
                                                              ------     ------
                                                              43,561     45,276
                                                              ======     ======


                                     F-33
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



25.   SHARE CAPITAL

<TABLE>
<CAPTION>

                                                                          December 31,
                                                                        ------------------
                                                                         2003       2004
                                                                        ------     ------
                                                                         RMB        RMB
REGISTERED, ISSUED AND FULLY PAID
<C>                                                                     <C>        <C>
67,121,951,000 domestic state-owned A shares of RMB 1.00 each........   67,122     67,122
16,780,488,000 overseas listed H shares of RMB 1.00 each.............   16,780     16,780
2,800,000,000 domestic listed A shares of RMB 1.00 each..............    2,800     2,800
                                                                        ------     ------
                                                                        86,702     86,702
                                                                        ======     ======
</TABLE>

      The Company was established on February 25, 2000 with a registered
capital of 68.8 billion domestic state-owned shares with a par value of RMB
1.00 each. Such shares were issued to Sinopec Group Company in consideration
for the assets and liabilities related to the Predecessor Operations
transferred to the Company (Note 1).

      Pursuant to the resolutions passed at an Extraordinary General Meeting
held on July 25, 2000 and approvals from relevant government authorities, the
Company is authorized to increase its share capital to a maximum of 88.3
billion shares with a par value of RMB 1.00 each and offer not more than 19.5
billion shares with a par value of RMB 1.00 each to investors outside the PRC.
Sinopec Group Company is authorized to offer not more than 3.5 billion shares
of its shareholdings in the Company to investors outside the PRC. The shares
sold by Sinopec Group Company to investors outside the PRC would be converted
into H shares.

      In October 2000, the Company issued 15,102,439,000 H shares with a par
value of RMB 1.00 each, representing 12,521,864,000 H shares and 25,805,750
American Depositary Shares ("ADSs", each representing 100 H shares), at prices
of HK$ 1.59 per H share and US$ 20.645 per ADS, respectively, by way of a
global initial public offering to Hong Kong and overseas investors. As part of
the global initial public offering, 1,678,049,000 domestic state-owned ordinary
shares of RMB 1.00 each owned by Sinopec Group Company were converted into H
shares and sold to Hong Kong and overseas investors.

      In July 2001, the Company issued 2.8 billion domestic listed A shares
with a par value of RMB 1.00 each at RMB 4.22 by way of a public offering to
natural persons and institutional investors in the PRC.

      All A shares and H shares rank pari passu in all material aspects.


                                     F-34

<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)


<TABLE>
26.  RESERVES
<CAPTION>

                                                                                              December 31,
                                                                                        --------------------------
                                                                                           2003         2004
                                                                                           RMB          RMB
<S>                                                                                        <C>          <C>
REVALUATION RESERVE
    At January 1.....................................................................      31,641       30,341
    Revaluation surplus realized.....................................................      (1,316)      (1,891)
    Revaluation surplus of Refining Assets...........................................          16           --
    Revaluation surplus of Petrochemical and Catalyst Assets.........................          --          257
    Impairment losses on revalued assets (Note 7)....................................          --         (709)
                                                                                          -------      -------
    At December 31...................................................................      30,341       27,998
                                                                                          -------      -------

CAPITAL RESERVE (Note (a))
    At January 1.....................................................................     (18,878)     (18,960)
    Transfer from other reserves.....................................................         (82)        (257)
                                                                                          -------      -------
    December 31......................................................................     (18,960)     (19,217)
                                                                                          -------      -------

SHARE PREMIUM (Note (b))
    At January 1 and December 31.....................................................      18,072       18,072
                                                                                          -------      -------

STATUTORY SURPLUS RESERVE (Note (c))
    At January 1.....................................................................       4,429        6,330
    Appropriation of net income......................................................       1,901        3,228
                                                                                          -------      -------
    At December 31...................................................................       6,330        9,558
                                                                                          -------      -------

STATUTORY PUBLIC WELFARE FUND (Note (d))
    At January 1.....................................................................       4,429        6,330
    Appropriation of net income......................................................       1,901        3,228
                                                                                          -------      -------
    At December 31...................................................................       6,330        9,558
                                                                                          -------      -------

DISCRETIONARY SURPLUS RESERVE (Note (e))
    At January 1 and at December 31..................................................       7,000        7,000
                                                                                          -------      -------

OTHER RESERVES
    At January 1.....................................................................      12,533        3,868
    Deferred tax effect of surplus on land use rights (Note (f) and Note 20).........          16           --
    Realization of deferred tax on land use rights (Note (f))........................          (5)          (5)
    Transfer from retained earnings..................................................       1,157        1,499
    Revaluation surplus of Refining Assets...........................................          82           --
    Revaluation surplus of Petrochemical and Catalyst Assets.........................          --          257
    Consideration for Acquisitions of Ethylene Assets and Refining Assets (Note 1) ..      (3,652)          --
    Consideration for Acquisition of Petrochemical and Catalyst Assets (Note 1)......          --       (3,128)
    Net assets distributed to Sinopec Group Company (Note (g)).......................      (6,263)      (2,244)
                                                                                          -------      -------
    At December 31...................................................................       3,868          247
                                                                                          -------      -------
</TABLE>


                                     F-35
<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)

<TABLE>
<CAPTION>
                                                                                 December  31,
                                                                             ---------------------
                                                                              2003         2004
                                                                              RMB          RMB
RETAINED EARNINGS (Note (h))
<S>                                                                           <C>        <C>
    At January 1..........................................................    20,849     31,832
    Final dividend in respect of the previous financial years,
        approved and paid during the year (Note (i))......................    (5,202)    (5,202)
    Interim dividend (Note (j))...........................................    (2,601)    (3,468)
    Net income............................................................    22,424     36,019
    Transfer to statutory surplus reserve.................................    (1,901)    (3,228)
    Proposed transfer to statutory public welfare fund....................    (1,901)    (3,228)
    Revaluation surplus realized..........................................     1,316      1,891
    Realization of deferred tax on land use rights........................         5          5
    Transfer to other reserves............................................    (1,157)    (1,499)
                                                                              ------    -------
    At December 31........................................................    31,832     53,122
                                                                              ------    -------
                                                                              84,813    106,338
                                                                              ======    =======
</TABLE>

Notes:

(a)   The capital reserve represents (i) the difference between the total
      amount of the par value of shares issued and the amount of the net assets
      transferred from Sinopec Group Company in connection with the
      Reorganization and (ii) the difference between the considerations paid
      over the amount of the net assets acquired from Sinopec National Star,
      Sinopec Maoming, Xi'an Petrochemical, Tahe Petrochemical, Tianjin
      Petrochemical, Luoyang Petrochemical, Zhongyuan Petrochemical, Guangzhou
      Petrochemical and Catalyst Plants.

(b)   The application of the share premium account is governed by Sections
      178 and 179 of the PRC Company Law.

(c)   According to the Company's Articles of Association, the Company is
      required to transfer 10% of its net income, as determined in accordance
      with the PRC Accounting Rules and Regulations, to statutory surplus
      reserve until the reserve balance reaches 50% of the registered capital.
      The transfer to this reserve must be made before distribution of a
      dividend to shareholders.

      Statutory surplus reserve can be used to make good previous years'
      losses, if any, and may be converted into share capital by the issue of
      new shares to shareholders in proportion to their existing shareholdings
      or by increasing the par value of the shares currently held by them,
      provided that the balance after such issue is not less than 25% of the
      registered capital. During the years ended December 31, 2003 and 2004,
      the Company transferred RMB 1,901 and RMB 3,228, respectively, being 10%
      of the current year's net income determined in accordance with the PRC
      Accounting Rules and Regulations, to this reserve.

(d)   According to the Company's Articles of Association, the Company is
      required to transfer 5% to 10% of its net income, as determined in
      accordance with the PRC Accounting Rules and Regulations, to the
      statutory public welfare fund. This fund can only be utilized on capital
      items for the collective benefits of the Company's employees such as the
      construction of dormitories, canteen and other staff welfare facilities.
      This fund is non-distributable other than on liquidation. The transfer to
      this fund must be made before distribution of a dividend to shareholders.

      Pursuant to the shareholders' approval at the Annual General Meeting on
      May 18, 2004, the Board of Directors was authorized to determine the
      amount of the transfer for the six-month period ended June 30, 2004. The
      directors authorized the transfer of RMB 1,504, being 10% of the net
      income for the six-month period ended June 30, 2004 determined in
      accordance with the PRC Accounting Rules and Regulations, to this fund.

                                     F-36
<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



      The directors authorized the transfer of RMB 1,724, subject to
      shareholders' approval, being 10% of the net income for the six-month
      period ended December 31, 2004 determined in accordance with the PRC
      Accounting Rules and Regulations, to this fund. The transfer to this fund
      for the years ended December 31, 2003 and 2004 were RMB 1,901 and RMB
      3,228, respectively.

(e)   The usage of the discretionary surplus reserve is similar to that of
      statutory surplus reserve.

(f)   Effective January 1, 2002, land use rights which are included in lease
      prepayments are carried at historical cost. Accordingly, the surplus on
      the revaluation of land use rights credited to revaluation reserve
      previously, net of minority interests, was eliminated during the year.
      The effect of this change did not have a material impact on the Group's
      financial condition and results of operations in the periods prior to the
      change. As a result of the tax deductibility of the revaluation surplus,
      a deferred tax asset, net of minority interests, is created with a
      corresponding increase in other reserves.

(g)   These represent net assets contributed from and distributed to Sinopec
      Group Company for no monetary consideration. The net assets distributed
      to Sinopec Group Company during the year ended December 31, 2003
      primarily represent certain assets retained by Sinopec Group Company in
      connection with the Acquisition of Ethylene Assets and the Acquisition of
      Refining Assets. The net assets distributed to Sinopec Group Company
      during the year ended December 31, 2004 primarily represent certain
      assets retained by Sinopec Group Company in connection with the
      Acquisition of Petrochemical and Catalyst Assets. These transactions were
      recorded at historical cost and were reflected as changes in other
      reserves in the year the acquisitions occurred.

(h)   According to the Company's Articles of Association, the amount of
      retained earnings available for distribution to shareholders of the
      Company is the lower of the amount determined in accordance with the PRC
      Accounting Rules and Regulations and the amount determined in accordance
      with IFRS. As of December 31, 2003 and 2004, the amounts of retained
      earnings available for distribution were RMB 19,732 and RMB 37,124,
      respectively, being the amount determined in accordance with the PRC
      Accounting Rules and Regulations. Pursuant to a resolution passed at the
      Directors' meeting on March 25, 2005, a final dividend in respect of the
      year ended December 31, 2004 of RMB 0.08 per share totaling RMB 6,936 was
      proposed for shareholders' approval at the Annual General Meeting. Final
      dividend of RMB 6,936 in respect of the year ended December 31, 2004 has
      not been not recognized as a liability as of the balance sheet date.

      Subject to the relevant provisions of the PRC Company Law and the
      Company's Articles of Association, Sinopec Group Company may seek to
      influence the Company's determination of dividends with a view to
      satisfying Sinopec Group Company's cash flow requirements.

(i)   Pursuant to the shareholders' approval at the Annual General Meeting on
      June 10, 2003, a final dividend of RMB 0.06 per share totaling RMB 5,202
      in respect of the year ended December 31, 2002 was declared and paid on
      June 30, 2003.

      Pursuant to the shareholders' approval at the Annual General Meeting on
      May 18, 2004, a final dividend of RMB 0.06 per share totaling RMB 5,202
      in respect of the year ended December 31, 2003 was declared and paid on
      June 28, 2004.

(j)   Pursuant to the shareholders' approval at the Annual General Meeting on
      June 10, 2003, the Board of Directors was authorized to declare the
      interim dividends for the year ended December 31, 2003. According to the
      resolution passed at the Directors' meeting on August 22, 2003, an
      interim dividend of RMB 0.03 per share totaling RMB 2,601 was declared.

      Pursuant to the shareholders' approval at the Annual General Meeting on
      May 18, 2004, the Board of Directors was authorized to declare the
      interim dividends for the year ended December 31, 2004. According to the
      resolution passed at the Directors' meeting on August 27, 2004, an
      interim dividend of RMB 0.04 per share totaling RMB 3,468 was declared.

                                     F-37
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



27.   COMMITMENTS AND CONTINGENT LIABILITIES

Operating lease commitments

     The Group leases service stations and other equipment through
non-cancellable operating leases. These operating leases do not contain
provisions for contingent lease rentals. None of the rental agreements contain
escalation provisions that may require higher future rental payments.

     As of December 31, 2004, the future minimum lease payments under operating
leases are as follows:

                                                          RMB
2005............................................        3,452
2006............................................        3,343
2007............................................        3,278
2008............................................        3,245
2009............................................        3,225
Thereafter......................................       97,527
                                                      -------
Total minimum lease payments....................      114,070
                                                      =======

     The Group's leasing arrangement impose no restrictions on dividends,
additional debt and/or further leasing.

Capital commitments

     As of December 31, 2004, the Group had capital commitments as follows:

                                                        RMB
The Group
Authorized and contracted for...................     43,001
Authorized but not contracted for...............     60,173
                                                    -------
                                                    103,174
                                                    =======
Jointly controlled entities
Authorized and contracted for...................      3,157
Authorized but not contracted for...............      2,088
                                                    -------
                                                      5,245
                                                    =======

     These capital commitments relate to oil and gas exploration and
development, refining and petrochemical production capacity expansion projects,
the construction of service stations and oil depots, and capital contributions
to the Group's investments and interests in associates.

Exploration and production licenses

     Exploration licenses for exploration activities are registered with the
Ministry of Land and Resources. The maximum term of the Group's exploration
licenses is 7 years, and may be renewed twice within 30 days prior to
expiration of the original term with each renewal being for a two-year term.
The Group is obligated to make progressive annual minimum exploration
investment relating to the exploration blocks in respect of which the license
is issued. The Ministry of Land and Resources also issues production licenses
to the Group on the basis of the reserve reports approved by relevant
authorities. The maximum term of a full production license is 30 years unless a
special dispensation was given by the State Council. The maximum term of
production licenses issued to the Group is 55 years as a special dispensation
was given to the Group by the State Council. The Group's production license is
renewable upon application by the Group 30 days prior to expiration.

                                     F-38
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)


     The Group is required to make payments of exploration license fees and
production right usage fees to the Ministry of Land and Resources annually
which are expensed as incurred. Payments incurred were approximately RMB 65,
RMB 97 and RMB 189 for the years ended December 31, 2002, 2003 and 2004,
respectively.

     Estimated future annual payments as of December 31, 2004 are as follows:

                                                          RMB
2005...........................................            90
2006...........................................           120
2007...........................................            75
2008...........................................            67
2009...........................................            74
Thereafter.....................................           279
                                                        -----
Total payments.................................           705
                                                        =====

Contingent liabilities

     (a) The Company has been advised by its PRC lawyers that, except for
liabilities constituting or arising out of or relating to the business assumed
by the Company in the Reorganization, no other liabilities were assumed by the
Company, and the Company is not jointly and severally liable for other debts
and obligations incurred by Sinopec Group Company prior to the Reorganization.

     (b) As of December 31, 2004, guarantees given to banks in respect of
banking facilities granted to the parties below were as follows:

                                                       RMB
Associates......................................      4,828
                                                      =====

      As of December 31, 2004, the Company's guarantees were primarily provided
to BASF-YPC Company Limited ("BASF-YPC"), an associate. BASF-YPC signed
domestic and foreign currencies denominated loan agreements equivalent to RMB
11,700 in March 2003. To enhance the credit standing of BASF-YPC, the Company
guarantees the interest payments as well as the repayment of the loans to an
amount of RMB 4,680. Payments are due if the Company is notified that BASF-YPC
is not able to fulfill its obligations at the maturity date. No collateral
secures BASF-YPC's obligation or the Company's guarantee. As of December 31,
2004, it is not probable that the Company will be required to make payments
under the guarantee. Thus no liability has been accrued for a loss related to
the Company's obligation under this guarantee arrangement.


                                     F-39
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



Environmental contingencies

     To date, the Group has not incurred any significant expenditures for
environmental remediation, is currently not involved in any environmental
remediation, and has not accrued any amounts for environmental remediation
relating to its operations. Under existing legislation, management believes
that there are no probable liabilities that will have a material adverse effect
on the financial position or operating results of the Group. The PRC
government, however, has moved, and may move further towards more rigorous
enforcement of applicable laws, and towards the adoption of more stringent
environmental standards. Environmental liabilities are subject to considerable
uncertainties which affect the Group's ability to estimate the ultimate cost of
remediation efforts. These uncertainties include i) the exact nature and extent
of the contamination at various sites including, but not limited to refineries,
oil fields, service stations, terminals and land development areas, whether
operating, closed or sold, ii) the extent of required cleanup efforts, iii)
varying costs of alternative remediation strategies, iv) changes in
environmental remediation requirements, and v) the identification of new
remediation sites. The amount of such future cost is indeterminable due to such
factors as the unknown magnitude of possible contamination and the unknown
timing and extent of the corrective actions that may be required. Accordingly,
the outcome of environmental liabilities under proposed or future environmental
legislation cannot reasonably be estimated at present, and could be material.
The Group paid normal routine pollutant discharge fees of approximately RMB
287, RMB 245 and RMB 248 for the years ended December 31, 2002, 2003 and 2004,
respectively.

Legal contingencies

     The Group is a defendant in certain lawsuits as well as the named party in
other proceedings arising in the ordinary course of business. While the
outcomes of such contingencies, lawsuits or other proceedings cannot be
determined at present, management believes that any resulting liabilities will
not have a material adverse effect on the financial position or operating
results of the Group.

28.   CONCENTRATION OF RISKS

Credit risk

      The carrying amounts of cash and cash equivalents, time deposits with
financial institutions, trade accounts and bills receivables, and other current
assets, except for prepayments, represent the Group's maximum exposure to
credit risk in relation to financial assets.

      The majority of the Group's trade accounts receivable relate to sales of
petroleum and chemical products to related parties and third parties operating
in the petroleum and chemical industries. The Group performs ongoing credit
evaluations of its customers' financial condition and generally does not
require collateral on trade accounts receivable. The Group maintains an
allowance for doubtful accounts and actual losses have been within management's
expectations. No single customer accounted for greater than 10% of total
revenues during the years ended December 31, 2002, 2003 and 2004.

      No other financial assets carry a significant exposure to credit risk.


                                     F-40
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



Concentration of economic risk

     The Group's operations may be adversely affected by significant political,
economic, and social uncertainties in the PRC. In addition, the ability to
negotiate and implement specific projects in a timely and favorable manner may
be impacted by political considerations unrelated to or beyond the control of
the Group. Although the PRC government has been pursuing economic reform
policies for the past two decades, no assurance can be given that the PRC
government will continue to pursue such policies or that such policies may not
be significantly altered. There is also no guarantee that the PRC government's
pursuit of economic reforms will be consistent or effective and as a result,
changes in the rate or method of taxation, reduction in tariff protection and
other import restrictions, and changes in state policies affecting the
industries to which the Group sells its products, may have a negative effect on
its operating results and financial conditions.

Currency risk

     Substantially all of the revenue-generating operations of the Group are
transacted in Renminbi, which is not fully convertible into foreign currencies.
On January 1, 1994, the PRC government abolished the dual rate system and
introduced a single rate of exchange as quoted by the People's Bank of China.
However, the unification of the exchange rate does not imply convertibility of
Renminbi into United States dollars or other foreign currencies. All foreign
exchange transactions continue to take place either through the People's Bank
of China or other banks authorized to buy and sell foreign currencies at the
exchange rates quoted by the People's Bank of China. Approval of foreign
currency payments by the People's Bank of China or other institutions requires
submitting a payment application form together with suppliers' invoices,
shipping documents and signed contracts.

Business risk

     The Group conducts its principal operations in China and accordingly is
subject to special considerations and significant risks not typically
associated with investments in equity securities of the United States and
Western European companies. These include risks associated with, among others,
the political, economic and legal environment, influence of the State Council
over substantially all aspects of its operations and competition in the oil and
gas industry.

Interest rate risk

     The interest rates and terms of repayment of short-term and long-term
debts of the Group are disclosed in Note 22.

Supply risk

     The Group's largest domestic supplier of crude oil is PetroChina Company
Limited. Negotiating another contract with a key supplier at similar terms and
costs could have a severe and significant impact on the Group's results of
operations.

                                     F-41
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



29.   RELATED PARTY TRANSACTIONS

     Companies are considered to be related if one company has the ability,
directly or indirectly, to control the other company or exercise significant
influence over the other company in making financial and operating decisions.
Companies are also considered to be related if they are subject to common
control or common significant influence.

     The Group is part of a larger group of companies under Sinopec Group
Company and has significant transactions and relationships with members of the
Sinopec Group. Because of these relationships, it is possible that the terms of
these transactions are not the same as those that would result from
transactions among wholly unrelated parties. Sinopec Group Company itself is
owned by the PRC government. There are also many other enterprises directly or
indirectly owned or controlled by the PRC government ("state-owned
enterprises"). Under IFRS, state-owned enterprises, other than Sinopec Group
Company and its affiliates, are not considered related parties. Related parties
refer to enterprises over which Sinopec Group Company is able to exercise
significant influence.

     The Group conducts business with state-owned enterprises. Furthermore, the
PRC government itself represents a significant customer of the Group both
directly through its numerous authorities and indirectly through its numerous
affiliates and other organizations. Sales of certain products to PRC government
authorities and affiliates and other state-owned enterprises may be at
regulated prices, which differ from market prices. The Group considers that
these sales are activities in the ordinary course of business in the PRC and
has not disclosed such sales as related party transactions.

     The principal related party transactions with Sinopec Group Company, which
were carried out in the ordinary course of business, are as follows:

<TABLE>
<CAPTION>
                                                                          Years ended December 31,
                                                                         ---------------------------
                                                                 Note       2002     2003      2004
                                                                         -------   -------   -------
                                                                            RMB       RMB      RMB
<S>                                                               <C>     <C>      <C>        <C>
Sales of goods................................................    (i)     28,563   32,134     63,507
Purchases.....................................................   (ii)     25,269   31,964     36,828
Transportation and storage....................................   (iii)     1,269    1,572      2,003
Exploration and development services..........................   (iv)     10,310   13,699     14,446
Production related services...................................    (v)      7,094    8,421      9,036
Ancillary and social services.................................   (vi)      1,870    1,783      1,740
Operating lease charges.......................................   (vii)     2,523    2,924      3,297
Agency commission income......................................  (viii)        37       41         41
Intellectual property licence fee paid........................   (ix)         10       10         10
Interest received.............................................    (x)        117      114         59
Interest paid.................................................   (xi)        636      583        622
Net deposits (withdrawn from)/placed with related parties.....   (xii)    (1,758)  (1,634)       340
Net loans obtained from/(repaid to) related parties...........  (xiii)     1,390      (24)     1,575
</TABLE>

     The amounts set out in the table above in respect of each of the years in
the three-year period ended December 31, 2004 represent the relevant costs to
the Group as determined by the corresponding contracts with the related
parties.

     There were no guarantees given to banks by the Group in respect of banking
facilities to Sinopec Group Company and its affiliates as of December 31, 2003
and 2004.

     The directors of the Company are of the opinion that the above
transactions with related parties were conducted in the ordinary course of
business and on normal commercial terms or in accordance with the agreements
governing such transactions, and this has been confirmed by the independent
non-executive directors.

                                     F-42
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



Notes:

(i)    Sales of goods represent the sale of crude oil, intermediate
       petrochemical products, petroleum products and ancillary materials.

(ii)   Purchases represent the purchase of material and utility supplies
       directly related to the Group's operations such as the procurement of
       raw and ancillary materials and related services, supply of water,
       electricity and gas.

(iii)  Transportation and storage represent the cost for the use of railway,
       road and marine transportation services, pipelines, loading, unloading
       and storage facilities.

(iv)   Exploration and development services comprise direct costs incurred in
       the exploration and development such as geophysical, drilling, well
       testing and well measurement services.

(v)    Production related services represent ancillary services rendered in
       relation to the Group's operations such as equipment repair and general
       maintenance, insurance premium, technical research, communications, fire
       fighting, security, product quality testing and analysis, information
       technology, design and engineering, construction which includes the
       construction of oilfield ground facilities, refineries and chemical
       plants, manufacture of replacement parts and machinery, installation,
       project management and environmental protection.

(vi)   Ancillary and social services represent expenditures for social welfare
       and support services such as educational facilities, media communication
       services, sanitation, accommodation, canteens, property maintenance and
       management services.

(vii)  Operating lease charges represent the rental paid to Sinopec Group
       Company for operating leases in respect of land, buildings and service
       stations.

(viii) Agency commission income represents commission earned for acting as an
       agent in respect of sales of products of and purchase of material for
       certain entities owned by Sinopec Group Company.

 (ix)  Intellectual property license fee represents reimbursement paid to
       Sinopec Group Company for fees required to maintain the validity of
       licenses, trademarks, patents, technology and computer software.

(x)    Interest received represents interest received from deposits placed with
       Sinopec Finance Company Limited, a finance company controlled by Sinopec
       Group Company. The applicable interest rate is determined in accordance
       with the prevailing saving deposit rate. The balance of deposits as of
       December 31, 2003 and 2004 were RMB 4,331 and RMB 4,671, respectively.

(xi)   Interest paid represents interest charges on the loans and advances
       obtained from Sinopec Group Company and Sinopec Finance Company Limited.

(xii)  Deposits were withdrawn from/placed with Sinopec Finance Company
       Limited.

(xiii) The Group obtained/repaid loans from/to Sinopec Group Company and
       Sinopec Finance Company Limited.

       In connection with the Reorganization, the Company and Sinopec Group
Company entered into a number of agreements under which 1) Sinopec Group
Company will provide goods and products and a range of ancillary, social and
supporting services to the Group and 2) the Group will sell certain goods to
Sinopec Group Company. The terms of these agreements are summarized as follows:

                                     F-43
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



(a)   The Company has entered into a non-exclusive Agreement for Mutual
      Provision of Products and Ancillary Services ("Mutual Provision
      Agreement") with Sinopec Group Company effective from January 1, 2000 in
      which Sinopec Group Company has agreed to provide the Group with certain
      ancillary production services, construction services, information
      advisory services, supply services and other services and products. While
      each of Sinopec Group Company and the Company is permitted to terminate
      the Mutual Provision Agreement upon at least six months notice, Sinopec
      Group Company has agreed not to terminate the agreement if the Group is
      unable to obtain comparable services from a third party. The pricing
      policy for these services and products provided by Sinopec Group Company
      to the Group is as follows:

      o  the government-prescribed price;

      o  where there is no government-prescribed price, the government-guidance
         price;

      o  where there is neither a government-prescribed price nor a
         government-guidance price, the market price; or

         where none of the above is applicable, the price to be agreed between
         the parties, which shall be based on a reasonable cost incurred in
         providing such services plus a profit margin not exceeding 6%.

 (b)  The Company has entered into a non-exclusive Agreement for Provision of
      Cultural and Educational, Health Care and Community Services with Sinopec
      Group Company effective from January 1, 2000 in which Sinopec Group
      Company has agreed to provide the Group with certain cultural,
      educational, health care and community services on the same pricing terms
      and termination conditions as agreed to in the above Mutual Provision
      Agreement.

(c)   The Company has entered into a series of lease agreements with Sinopec
      Group Company to lease certain land and buildings at a rental of
      approximately RMB 2,447 and RMB 567, respectively, per annum. The Company
      and Sinopec Group Company can renegotiate the rental amount every three
      years for land and every year for buildings, such amount not to exceed
      the market price as determined by an independent third party. The Group
      has the option to terminate these leases upon six months notice to
      Sinopec Group Company.

(d)   The Company has entered into agreements with Sinopec Group Company
      effective from January 1, 2000 under which the Group has been granted the
      right to use certain trademarks, patents, technology and computer
      software developed by Sinopec Group Company. The Group will reimburse
      Sinopec Group Company for fees required to maintain the validity of these
      licenses.

(e)   The Company has entered into agency agreements effective from January 1,
      2000 with certain entities owned by Sinopec Group Company under which the
      Group acts as a sole agent in respect of the sale of all the products of
      these entities. In exchange for the Group's sales agency services,
      Sinopec Group Company has agreed to pay the Group a commission of between
      0.2% and 1.0% of actual sales receipts depending on the products and to
      reimburse the Group for reasonable costs incurred in the capacity as its
      sales agent.

(f)   The Company has entered into a service stations franchise agreement with
      Sinopec Group Company effective from January 1, 2000 under which its
      service stations and retail stores would exclusively sell the refined
      products supplied by the Group.


                                     F-44
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)



      On December 19, 2002, the Company and Sinopec Group Company entered into
an asset swap agreement whereby the Company transferred to Sinopec Group
Company certain individual assets and liabilities, consisting principally of,
water plants, inspection, maintenance, geology and geophysical assets and
related liabilities. The carrying amount of the net assets transferred to
Sinopec Group Company approximated the net appraised amount of RMB 1,021. In
return, Sinopec Group Company transferred to the Company certain gas stations
and oil depot assets. The carrying and appraised amounts of such assets
transferred to the Company were RMB 462 and RMB 1,040, respectively. The
difference between the appraised amounts of the assets exchanged of RMB 19 was
paid in cash by the Company.

      As discussed in Note 1, the Group acquired the equity interest of Sinopec
Maoming from Sinopec Group Company for a consideration of RMB 3.3 billion. As
of the valuation date, the carrying amount of the net asset acquired
approximated the net appraised amount of RMB 3.3 billion.

      As discussed in Note 1, the Group acquired the equity interest of Tahe
Petrochemical and Xi'an Petrochemical from Sinopec Group Company for a
consideration of RMB 356. As of the valuation date, the carrying amount of the
net asset acquired approximated the net appraised amount of RMB 356.

      In December 2003, Sinopec Group Company repaid a bank loan of RMB 962 on
behalf of a subsidiary of the Group in exchange for a receivable from that
subsidiary.

      As discussed in Note 1, pursuant to the resolutions passed at the
Extraordinary General Meeting held on December 21, 2004, the Group acquired the
equity interests of Tianjin Petrochemical, Luoyang Petrochemical, Zhongyuan
Petrochemical, Guangzhou Petrochemical and Catalyst Plants from Sinopec Group
Company for a total consideration payable of RMB 3,128. In addition, the Group
acquired certain individual assets and liabilities from Sinopec Group Company
for a total consideration payable of RMB 2,232. In connection with these
acquisitions, the Group disposed of certain property, plant and equipment, with
net book value of RMB 1,857, and certain other assets and liabilities, related
to its oilfield downhole operation (the "Downhole Assets") to Sinopec Group
Company for a consideration receivable of RMB 1,712, which approximated the net
carrying value of the assets and liabilities, resulting in a net cash
consideration of RMB 3,648 payable to Sinopec Group Company.

30.   EMPLOYEE BENEFITS PLAN

     As stipulated by the regulations of the PRC, the Group participates in
various defined contribution retirement plans organized by municipal and
provincial governments for its staff. The Group is required to make
contributions to the retirement plans at rates ranging from 17.0% to 30.0% of
the salaries, bonuses and certain allowances of its staff. A member of the plan
is entitled to a pension equal to a fixed proportion of the salary prevailing
at his or her retirement date. The Group has no other material obligation for
the payment of pension benefits associated with these plans beyond the annual
contributions described above. The Group's contributions for the years ended
December 31, 2002, 2003 and 2004 were RMB 1,726, RMB 1,882 and RMB 2,242,
respectively.

      The Company implemented a plan of share appreciation rights for members
of its senior management in order to provide further incentives to these
employees. Under this plan, share appreciation rights were granted in units
with each unit representing one H share. No shares will be issued under the
share appreciation rights plan.

      Under the plan, all share appreciation rights have an exercise period of
five years. A recipient of share appreciation rights may not exercise the
rights in the first three years after the date of grant. As of each of the
third, fourth and fifth anniversary of the date of grant, the total number of
share appreciation rights exercisable may not in aggregate exceed 30%, 70% and
100%, respectively, of the total share appreciation rights granted to such
person.

      During 2003, the Company granted 258.6 million share appreciation right
units to eligible employees.

                                     F-45
<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
            (All amounts in millions of Renminbi, except share data)


      The exercise price of share appreciation rights initially granted is the
initial public offering price of the Company's H shares. Upon exercise of the
share appreciation rights, a recipient will receive, subject to any applicable
withholding tax, a cash payment in RMB, translated from the Hong Kong dollar
amount equal to the product of the number of share appreciation rights
exercised and the difference between the exercise price and average market
price of the Company's H shares for the exercise period based on the applicable
exchange rate between RMB and Hong Kong dollar at the date of the exercise.

     The Company recognizes compensation expense of the share appreciation
rights over the applicable vesting period. For the year ended December 31,
2004, compensation expense recognized was RMB 150.

31.   SEGMENTAL REPORTING

     The Group has five operating segments as follows:

     (i)  Exploration and production, which explores and develops oil fields,
          produces crude oil and natural gas and sells such products to the
          refining segment of the Group and external customers.

     (ii) Refining, which processes and purifies crude oil, which is sourced
          from the exploration and production segment of the Group and external
          suppliers, and manufactures and sells petroleum products to the
          chemicals and marketing and distribution segments of the Group and
          external customers.

     (iii) Marketing and distribution, which owns and operates oil depots and
          service stations in the PRC, and distributes and sells refined
          petroleum products (mainly gasoline and diesel) in the PRC through
          wholesale and retail sales networks.

     (iv) Chemicals, which manufactures and sells petrochemical products,
          derivative petrochemical products and other chemical products mainly
          to external customers.

     (v)  Corporate and others, which largely comprise the trading activities
          of the import and export companies of the Group and research and
          development undertaken by other subsidiaries.

     The segments were determined primarily because the Group manages its
exploration and production; refining; marketing and distribution; chemicals;
and corporate and others businesses separately. The reportable segments are
each managed separately because they manufacture and/or distribute distinct
products with different production processes and due to their distinct
operating and gross margin characteristics. In view of the fact that the
Company and its subsidiaries operate mainly in the PRC, no geographical segment
information is presented.

      The Group evaluates the performance and allocates resources to its
operating segments on an operating income basis, without considering the
effects of finance costs or investment income. The accounting policies of the
Group's segments are the same as those described in the principal accounting
policies (see Note 2). Corporate administrative costs and assets are not
allocated to the operating segments; instead, operating segments are billed for
direct corporate services. Inter-segment transfer pricing is based on cost plus
an appropriate margin, as specified by the Group's policy.


                                     F-46
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (All amounts in millions of Renminbi, except share data)


<TABLE>
     Reportable information on the Group's business segments is as follows:
<CAPTION>


                                                                   Years ended December  31,
                                                              -----------------------------------
                                                                 2002        2003         2004
                                                              --------     -------       -------
                                                                  RMB         RMB          RMB
<S>                                                             <C>         <C>           <C>
SALES OF GOODS
Exploration and production
     External sales.......................................      10,920      14,936        15,970
     Inter-segment sales..................................      39,407      47,287        60,053
                                                              --------     -------       -------
                                                                50,327      62,223        76,023
Refining
     External sales.......................................      41,639      51,445        63,388
     Inter-segment sales..................................     168,615     217,755       289,699
                                                              --------     -------       -------
                                                               210,254     269,200       353,087
Marketing and distribution
     External sales.......................................     184,378     238,210       342,840
     Inter-segment sales..................................       2,329       2,602         2,831
                                                              --------     -------       -------
                                                               186,707     240,812       345,671
Chemicals
     External sales.......................................      72,154      91,964       126,013
     Inter-segment sales..................................       7,878       7,415        12,510
                                                              --------     -------       -------
                                                                80,032      99,379       138,523
Corporate and others
     External sales.......................................      24,782      33,394        48,986
     Inter-segment sales..................................      20,355      30,371        32,046
                                                              --------     -------       -------
                                                                45,137      63,765        81,032
Elimination of inter-segment sales........................    (238,584)   (305,430)     (397,139)
Total sales of goods......................................     333,873     429,949       597,197
                                                              --------     -------       -------

OTHER OPERATING REVENUES
Exploration and production................................       7,305       8,039         9,283
Refining..................................................       3,074       4,573         5,186
Marketing and distribution................................         342         548           755
Chemicals.................................................       4,293       4,461         6,170
Corporate and others......................................       1,191       1,431         1,192
                                                              --------     -------       -------
Total other operating revenues............................      16,205      19,052        22,586
                                                              --------     -------       -------
Total operating revenues..................................     350,078     449,001       619,783
                                                              =========    =======       =======
</TABLE>

                                     F-47
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (All amounts in millions of Renminbi, except share data)

<TABLE>
<CAPTION>

                                                                 Years ended December  31,
RESULT                                                        ---------------------------------
                                                               2002         2003         2004
                                                              ------      -------       -------
                                                                RMB          RMB          RMB
<S>                                                          <C>          <C>           <C>
OPERATING INCOME BY SEGMENT
   - Exploration and production.........................      14,787       19,160        25,614
   - Refining...........................................       6,024        6,073         5,943
   - Marketing and distribution.........................       8,401       11,943        14,716
   - Chemicals..........................................       1,088        3,543        18,721
   - Corporate and others...............................        (999)      (1,836)       (1,925)
                                                              ------      -------       -------
Total operating income.................................       29,301       38,883        63,069
                                                              ------      -------       -------
INCOME/(LOSS) FROM ASSOCIATES
   - Exploration and production.........................         152          293           447
   - Refining...........................................           1           (1)           58
   - Marketing and distribution.........................          63           43           302
   - Chemicals..........................................          24          (41)         (164)
   - Corporate and others...............................          84          102           154
                                                              ------      -------       -------
Aggregate income from associates .......................         324          396           797
                                                              ------      -------       -------
FINANCE COSTS
     Interest expense...................................      (4,932)      (4,365)       (4,583)
     Interest income....................................         351          322           374
     Foreign exchange losses............................        (427)        (450)         (223)
     Foreign exchange gains.............................          60           30            61
                                                              ------      -------       -------
NET FINANCE COSTS.......................................      (4,948)      (4,463)       (4,371)
Gain from issuance of shares by a subsidiary............          --          136           --
Investment income........................................        239           89           111
                                                              ------      -------       -------
INCOME BEFORE INCOME TAX AND MINORITY INTERESTS.........      24,916       35,041        59,606
Income tax..............................................      (7,491)     (10,645)      (17,815)
                                                              ------      -------       -------
INCOME BEFORE MINORITY INTERESTS........................      17,425       24,396        41,791
Minority interests......................................      (1,129)      (1,972)       (5,772)
                                                              ------      -------       -------
NET INCOME..............................................      16,296       22,424        36,019
                                                              ======      =======       =======
</TABLE>

         Assets and liabilities dedicated to a particular segment's operations
are included in that segment's total assets and liabilities. Assets which
benefit more than one segment or are considered to be corporate assets are not
allocated. "Unallocated assets" consists primarily of cash and cash
equivalents, time deposits with financial institutions, investments and
deferred tax assets.  "Unallocated liabilities" consists primarily of
short-term and long-term debts, loans from Sinopec Group Company and its
affiliates, income tax payable, deferred tax liabilities and other
liabilities.

         Interests in and income from associates are included in the segments
in which the associates operate. Information on associates is included in Note
18. Additions to long-lived assets by operating segment are included in Notes
15 and 16.

                                     F-48
<PAGE>



            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (All amounts in millions of Renminbi, except share data)

<TABLE>
<CAPTION>

                                                                        December 31,
                                                               ------------------------------
                                                                 2002      2003        2004
                                                               -------    -------     -------
                                                                  RMB       RMB         RMB
<S>                                                             <C>       <C>         <C>
ASSETS
Segment assets
   - Exploration and production...........................      90,983    101,303     110,509
   - Refining.............................................      90,704     96,839     111,878
   - Marketing and distribution...........................      71,516     73,942      93,722
   - Chemicals............................................     101,667    101,130     105,032
   - Corporate and others.................................      18,610     14,445      17,574
                                                               -------    -------     -------
TOTAL SEGMENT ASSETS......................................     373,480    387,659     438,715
                                                               -------    -------     -------
Interests in associates
   - Exploration and production...........................       1,583      1,233       1,396
   - Refining.............................................         147        136         314
   - Marketing and distribution...........................       1,435      1,815       2,410
   - Chemicals............................................       3,624      3,517       4,315
   - Corporate and others.................................       1,275      1,420       1,787
                                                               -------    -------     -------
AGGREGATE INTERESTS IN ASSOCIATES.........................       8,064      8,121      10,222
                                                               -------    -------     -------
Unallocated assets........................................      25,734     24,404      25,657
                                                               -------    -------     -------
TOTAL ASSETS..............................................     407,278    420,184     474,594
                                                               =======    =======     =======
LIABILITIES
Segment liabilities
   - Exploration and production...........................      16,126     15,733      16,241
   - Refining.............................................      22,235     25,729      28,130
   - Marketing and distribution...........................      19,472     21,091      23,419
   - Chemicals............................................      15,458     18,951      16,528
   - Corporate and others.................................       9,046     10,022      15,547
                                                               -------    -------     -------
TOTAL SEGMENT LIABILITIES.................................      82,337     91,526      99,865
                                                               -------    -------     -------
Unallocated liabilities...................................     135,015    131,092     150,643
                                                               -------    -------     -------
TOTAL LIABILITIES.........................................     217,352    222,618     250,508
                                                               =======    =======     =======
</TABLE>


                                     F-49
<PAGE>



            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (All amounts in millions of Renminbi, except share data)


<TABLE>
         Segment capital expenditure is the total cost incurred during the
year to acquire segment assets that are expected to be used for more than one
year.
<CAPTION>

                                                                               Years ended December 31,
                                                                            -------------------------------
                                                                             2002        2003         2004
                                                                            ------      ------       ------
                                                                              RMB         RMB          RMB
CAPITAL EXPENDITURE
<S>                                                                         <C>         <C>          <C>
Exploration and production............................................      20,228      20,628       21,234
Refining..............................................................       6,698       9,788       14,272
Marketing and distribution............................................       6,982       6,826       16,678
Chemicals.............................................................       7,769       7,680       11,025
Corporate and others..................................................         816         518        1,550
                                                                            ------      ------       ------
                                                                            42,493      45,440       64,759
                                                                            ======      ======       ======
CAPITAL EXPENDITURE OF JOINTLY CONTROLLED ENTITIES
Exploration and production............................................          --       1,200        1,323
Chemicals.............................................................          --       2,993        5,178
                                                                            ------      ------       ------
                                                                                --       4,193        6,501
                                                                            ------      ------       ------
DEPRECIATION, DEPLETION AND AMORTIZATION
Exploration and production............................................       9,033       9,413       12,066
Refining..............................................................       6,097       6,434        7,730
Marketing and distribution............................................       1,968       2,431        2,759
Chemicals.............................................................       9,030       9,149        9,325
Corporate and others..................................................         364         524          462
                                                                            ------      ------       ------
                                                                            26,492      27,951       32,342
                                                                            ======      ======       ======
IMPAIRMENT LOSSES ON LONG-LIVED ASSETS RECOGNIZED IN STATEMENT OF INCOME
Exploration and production............................................          --         310           98
Refining..............................................................          --         114           14
Marketing and distribution............................................          --          --        1,769
Chemicals.............................................................          --         453        2,038
                                                                            ------      ------       ------
                                                                                --         877        3,919
                                                                            ======      ======       ======
IMPAIRMENT LOSSES ON LONG-LIVED ASSETS RECOGNIZED IN SHAREHOLDERS' EQUITY
Chemicals.............................................................          --          --          709
                                                                            ======      ======       ======
</TABLE>



                                     F-50

<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (All amounts in millions of Renminbi, except share data)


 PRINCIPAL SUBSIDIARIES

<TABLE>
     Details of the Group's principle subsidiaries are as follows:
<CAPTION>

                                      Particulars  Type of   Percentage of equity
                                       of issued    legal     held by     held by
   Name of company                      capital     entity  the Company  Subsidiary   Principal activities
   ---------------                      -------    -------  -----------  ----------   --------------------
                                                                  %          %
<S>                                     <C>        <C>         <C>         <C>         <C>
China Petrochemical International       RMB1,400   Limited     100.00      --          Trading of crude oil and
   Company Limited                                 company                             petrochemical products

Sinopec Beijing Yanhua Petrochemical   RMB 3,374   Limited      70.01      --          Manufacturing of chemical products
  Company Limited                                  company

Sinopec Sales Company Limited          RMB 1,700   Limited     100.00      --          Marketing and distribution of refined
                                                   company                             petroleum products

Sinopec Shengli Oilfield Company      RMB 29,000   Limited     100.00      --          Exploration and production of crude
   Limited                                         company                             oil and natural gas

Sinopec Fujian Petrochemical           RMB 2,253   Limited      50.00      --          Manufacturing of plastics,
   Company Limited (i)                             company                             intermediate petrochemical products
                                                                                       and petroleum products

Sinopec Qilu Petrochemical Company     RMB 1,950   Limited      82.05      --          Manufacturing of intermediate
  Limited                                          company                             petrochemical products and petroleum
                                                                                       products

Sinopec Shanghai Petrochemical         RMB 7,200   Limited      55.56      --          Manufacturing of synthetic fibers,
   Company Limited                                 company                             resin and plastics, intermediate
                                                                                       petrochemical products and petroleum
                                                                                       products

Sinopec Shijiazhuang Refining-        RMB 1,154    Limited      79.73      --          Manufacturing of intermediate
  Chemical Company Limited                         company                             petrochemical products and petroleum
                                                                                       products

Sinopec Kantonnes Holdings Limited      HK$ 104    Limited        --      72.40        Trading of crude oil and petroleum
                                                   company                             products

Sinopec Wuhan Petroleum Group           RMB 147    Limited      46.25      --          Marketing and distribution of refined
   Company Limited (i)                             company                             petroleum products

Sinopec Wuhan Phoenix Company           RMB 519    Limited      40.72      --          Manufacturing of petrochemical
   Limited (i)                                     company                             products and petroleum products

Sinopec Yangzi Petrochemical Company  RMB 2,330    Limited      84.98      --          Manufacturing of intermediate
   Limited                                         company                             petrochemical products and petroleum
                                                                                       products

Sinopec Yizheng Chemical Fiber        RMB 4,000    Limited      42.00      --          Production and sale of polyester
   Company Limited (i)                             company                             chips and polyester fibers

Sinopec Zhenhai Refining and          RMB 2,524    Limited      71.32      --          Manufacturing of intermediate
   Chemical Company Limited                        company                             petrochemical products and petroleum
                                                                                       products

Sinopec Zhongyuan Petroleum Company     RMB 875    Limited      70.85      --          Exploration and production of crude
   Limited                                         company                             oil and natural gas

Zhongyuan Petrochemical Company       RMB 2,400    Limited      93.51      --          Manufacturing of chemical products
   Limited                                         company

Sinopec Shell (Jiangsu) Petrochemical   RMB 455    Limited      60.00      --          Marketing and distribution of refined
    Marketing Company Limited                      company                             petroleum products

BP Sinopec (Zhejiang) Petrochemical     RMB 647    Limited      60.00      --          Marketing and distribution of refined
   Company Limited                                 company                             petroleum products

</TABLE>

         Except for Sinopec Kantons Holdings Limited, which is incorporated in
Bermuda, all of the above principal subsidiaries are incorporated in the PRC.

(i)      The Group consolidated the results of the entity because the Group
         controlled the board of this entity and had the power to govern its
         financial and operating policies.

                                     F-51
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (All amounts in millions of Renminbi, except share data)


33. FAIR VALUES OF FINANCIAL INSTRUMENTS

     Financial assets of the Group include cash and cash equivalents, time
deposits, investments, trade accounts receivable, bills receivable, amounts due
from Sinopec Group Company and its affiliates, advances to third parties,
amounts due from associates, and other receivables. Financial liabilities of
the Group include bank and other loans, loans from Sinopec Group Company and
its affiliates, trade accounts payable, bills payable, amounts due to Sinopec
Group Company and its affiliates, receipts in advance, and advances from third
parties. The Group has no derivative instruments that are designated and
qualified as hedging instruments as of December 31, 2003 and 2004.

     The disclosures of the fair value estimates, methods and assumptions, set
forth below for the Group's financial instruments, are made to comply with the
requirements of IAS 32 and IAS 39 and should be read in conjunction with the
Group's consolidated financial statements and related notes. The estimated fair
value amounts have been determined by the Group using market information and
valuation methodologies considered appropriate. However, considerable judgment
is required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Group could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.

      The Group has not developed an internal valuation model necessary to make
the estimate of the fair value of loans from Sinopec Group Company and its
affiliates as it is not considered practicable to estimate their fair value
because the cost of obtaining discount and borrowing rates for comparable
borrowings would be excessive based on the Reorganization of the Group, its
existing capital structure, and the terms of the borrowings.

     The following table presents the carrying amount and fair value of the
Group's long-term indebtedness other than loans from Sinopec Group Company and
its affiliates as of December 31, 2003 and 2004:

                                                                  December 31,
                                                               ----------------
                                                               2003        2004
                                                               ----        ----
                                                               RMB         RMB

Carrying amount..........................................    57,448      73,120
Fair value...............................................    57,546      73,263

     The fair value of long-term indebtedness is estimated by discounting
future cash flows thereon using current market interest rates offered to the
Group for debts with substantially the same characteristics and maturities.

     Investments are unquoted equity interests, and are individually and in the
aggregate not material to the Group's financial condition or results of
operations for all periods presented. There are no quoted market prices for
such interests in the PRC and, accordingly, a reasonable estimate of fair value
could not be made without incurring excessive costs.

     The fair values of all other financial instruments approximate their
carrying amounts due to the nature or short-term maturity of these instruments.

                                     F-52
<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (All amounts in millions of Renminbi, except share data)


34.  SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP

     The Group's accounting policies conform with IFRS which differ in certain
significant respects from US GAAP. Information relating to the nature and
effect of such differences are set out below.

(a)  Foreign exchange gains and losses

     In accordance with IFRS, foreign exchange differences on funds borrowed
for construction are capitalized as property, plant and equipment to the extent
that they are regarded as an adjustment to interest costs during the
construction period. Under US GAAP, all foreign exchange gains and losses on
foreign currency debts are included in current earnings. Accordingly, the US
GAAP adjustments represent the amortization effect of such originating
adjustments described above.

(b)  Capitalization of property, plant and equipment

     In the years prior to those presented herein, certain adjustments arose
between IFRS and US GAAP with regard to the capitalization of interest and
pre-production results under IFRS that were reversed and expensed under US
GAAP. For the years presented herein, there were no adjustments related to the
capitalization of interest and pre-production results. Accordingly, the US GAAP
adjustments represent the amortization effect of such originating adjustments
described above.

(c)  Revaluation of property, plant and equipment

     As required by the relevant PRC regulations with respect to the
Reorganization, the property, plant and equipment of the Group were revalued as
of September 30, 1999. In addition, the property, plant and equipment of
Sinopec National Star, Sinopec Maoming, Refining Assets, and Petrochemical and
Catalyst Assets were revalued as of December 31, 2000, June 30, 2003, October
31, 2003 and June 30, 2004, respectively, in connection with the Acquisitions
of Sinopec National Star, Sinopec Maoming, Refining Assets, and Petrochemical
and Catalyst Assets. Under IFRS, such revaluations result in an increase in
shareholders' equity with respect to the increase in carrying amount of certain
property, plant and equipment above their historical cost bases and a charge to
income with respect to the reduction in carrying amount of certain property,
plant and equipment below their historical cost bases.

     Under US GAAP, property, plant and equipment are stated at their
historical cost less accumulated depreciation. However, as a result of the tax
deductibility of the net revaluation surplus, a deferred tax asset related to
the reversal of the revaluation surplus is created under US GAAP with a
corresponding increase in shareholders' equity.

     Under IFRS, effective January 1, 2002, land use rights, which were
previously carried at revalued amount, are carried at cost under IFRS. The
effect of this change resulted in a decrease to revaluation reserve net of
minority interests of RMB 840 as of January 1, 2002. This revaluation reserve
was previously included as part of the revaluation reserve of property, plant
and equipment. This change under IFRS eliminated the US GAAP difference
relating to the revaluation of land use rights. However, as a result of the tax
deductibility of the revalued land use rights, the reversal of the revaluation
reserve resulted in a deferred tax asset.

     In addition, under IFRS, on disposal of a revalued asset, the related
revaluation surplus is transferred from the revaluation reserve to retained
earnings. Under US GAAP, the gain and loss on disposal of an asset is
determined with reference to the asset's historical carrying amount and
included in current earnings.

                                     F-53
<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (All amounts in millions of Renminbi, except share data)


(d)  Exchange of assets

     As described in Note 29, the Company and Sinopec Group Company entered
into an asset swap transaction on December 19, 2002. Under IFRS, the cost of
property, plant and equipment acquired in an exchange for a dissimilar item of
property, plant and equipment is measured at fair value. Under US GAAP, as the
exchange of assets was between entities under common control, the assets
received from Sinopec Group Company are measured at historical cost. The
difference between the historical cost of the net assets transferred and the
net assets received is accounted for as an equity transaction. Accordingly, the
US GAAP adjustments represent the amortization effect of such originating
adjustments described above.

(e)  Impairment of long-lived assets

     Under IFRS, impairment charges are recognized when a long-lived asset's
carrying amount exceeds the higher of an asset's net selling price and value in
use, which incorporates discounting the asset's estimated future cash flows.

     Under US GAAP, determination of the recoverability of a long-lived asset
is based on an estimate of undiscounted future cash flows resulting from the
use of the asset and its eventual disposition. If the sum of the expected
future cash flows is less than the carrying amount of the asset, an impairment
loss is recognized. Measurement of an impairment loss for a long-lived asset is
based on the fair value of the asset.

     In addition, under IFRS, a subsequent increase in the recoverable amount
of an asset is reversed to the consolidated statements of income to the extent
that an impairment loss on the same asset was previously recognized as an
expense when the circumstances and events that led to the write-down or
write-off cease to exist. The reversal is reduced by the amount that would have
been recognized as depreciation had the write-off not occurred. Under US GAAP,
an impairment loss establishes a new cost basis for the impaired asset and the
new cost basis should not be adjusted subsequently other than for further
impairment losses.

     The US GAAP adjustment represents the effect of reversing the recovery of
previous impairment charges recorded under IFRS.

(f)  Capitalized interest on investment in associates

     Under IFRS, investment accounted for by the equity method is not
considered a qualifying asset for which interest is capitalized. Under US GAAP,
an investment accounted for by the equity method while the investee has
activities in progress necessary to commence its planned principal operations,
provided that the investee's activities include the use of funds to acquire
qualifying assets for its operations, is a qualifying asset for which interest
is capitalized.

(g)  Goodwill amortization

     Under IFRS, goodwill and negative goodwill are amortized on a systematic
basis over their useful lives.

     Under US GAAP, with reference to Statement of Financial Accounting
Standards No.142, "Goodwill and Other Intangible Assets" ("SFAS No.142"),
goodwill is no longer amortized beginning January 1, 2002. Instead, goodwill is
reviewed for impairment upon adoption of SFAS No.142 and annually thereafter.

                                     F-54
<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (All amounts in millions of Renminbi, except share data)


(h)  Companies included in consolidation

     Under IFRS, the Group consolidates less than majority owned entities in
which the Group has the power, directly or indirectly, to govern the financial
and operating policies of an entity so as to obtain benefits from its
activities, and proportionately consolidates jointly controlled entities in
which the Group has joint control with other venturers. However, US GAAP
requires that any entity of which the Group owns 20% to 50% of total
outstanding voting stock not be consolidated nor proportionately consolidated,
but rather be accounted for under the equity method. Accordingly, certain of
the Group's subsidiaries, of which the Group owns between 40.72% to 50% of the
outstanding voting stock, and the Group's jointly controlled entities are not
consolidated nor proportionately consolidated under US GAAP and instead
accounted for under the equity method. This exclusion does not affect the net
income or shareholders' equity reconciliations between IFRS and US GAAP.

     Presented below is summarized financial information prepared in accordance
with US GAAP of such subsidiaries and jointly controlled entities.

                                                   Years ended December 31,
                                                 ----------------------------
                                                 2002        2003        2004
                                                 ----        ----        ----
                                                  RMB         RMB         RMB

Revenues.....................................   16,719      21,735      28,004
Income before income tax.....................      666       1,329       1,373
Net income...................................      468       1,090         969


                                                   Years ended December 31,
                                                 ----------------------------
                                                 2002        2003        2004
                                                 ----        ----        ----
                                                  RMB         RMB         RMB

Current assets...............................     5,169       4,986       7,084
Total assets.................................    17,463      27,607      41,213
Current liabilities..........................     4,612       5,902       7,222
Total liabilities............................     4,992       9,238      16,452
Total equity.................................    12,471      18,369      24,761

(i) Related party transactions

     Under IFRS, transactions of state-controlled enterprises with other
state-controlled enterprises are not required to be disclosed as related party
transactions. Furthermore, government departments and agencies are deemed not
to be related parties to the extent that such dealings are in the normal course
of business. Therefore, related party transactions as disclosed in Note 29 only
refers to transactions with enterprises over which Sinopec Group Company is
able to exercise significant influence.

     Under US GAAP, there are no similar exemptions. Although the majority of
the Group's activities are with PRC government authorities and affiliates and
other PRC state-owned enterprises, the Group believes that it has provided
meaningful disclosure of related party transactions in Note 29.

                                     F-55
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (All amounts in millions of Renminbi, except share data)



(j)  Recently issued accounting standards

     SFAS No. 123R

     In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-based payment". SFAS No. 123R addresses the accounting for share-based
payment transactions in which an enterprise receives employee services in
exchange for equity instruments of the enterprise or liabilities that are based
on the fair value of the enterprise's equity instruments or that may be settled
by the issuance of such equity instruments. SFAS No. 123R requires an entity to
recognize the grant-date fair-value of stock options and other equity-based
compensation issued to employees in the income statement. The revised statement
generally requires that an entity account for those transactions using the
fair-value-based method, and eliminates an entity's ability to account for
share-based compensation transactions using the intrinsic value method of
accounting, which was permitted under Statement 123, as originally issued. For
the Group, SFAS No. 123R is effective for fiscal years beginning after June 15,
2005. Currently, the Group does not expect the initial application of this
statement will have a material impact on its consolidated financial statements.

     SFAS No. 151

     In November 2004, the FASB issued SFAS No. 151, "Inventory costs". SFAS
No. 151 clarifies accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage). The statement requires
that those items be recognized as current period charges. Additionally, SFAS
No. 151 requires that allocation of fixed production overheads to the costs of
conversion based on normal capacity of the production facilities. For the
Group, SFAS No. 151 is effective for fiscal years beginning after June 15,
2005. Currently, the Group does not expect the initial application of this
statement will have a material impact on its consolidated financial statements.

                                     F-56
<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (All amounts in millions of Renminbi, except share data)


Reconciliation to US GAAP

<TABLE>
     The effect on net income of significant differences between IFRS and US
GAAP for the years ended December 31, 2002, 2003 and 2004 is as follows:
<CAPTION>
                                                                   Reference        Years ended December 31,
                                                                    in note     -------------------------------
                                                                     above      2002     2003     2004     2004
                                                                     -----      ----     ----     ----     ----
                                                                                 RMB      RMB      RMB      US$

<S>                                                                   <C>      <C>      <C>      <C>      <C>
Net income under IFRS...........................................               16,296   22,424   36,019   4,352
US GAAP adjustments:
     Foreign exchange gains and losses..........................      (a)          76       76       57       7
     Capitalization of property, plant and equipment............      (b)          12       12       12       1
     Reversal of deficit on revaluation of property, plant and..
       equipment, net of depreciation effect....................      (c)          --       86       (8)     (1)
     Depreciation on revalued property, plant and equipment.....      (c)       4,126    3,998    3,825     462
     Disposal of property, plant and equipment..................      (c)         544    1,316    1,891     228
     Exchange of assets.........................................      (d)          --       23       23       3
     Reversal of impairment of long-lived assets,
        net of depreciation effect..............................      (e)          59       47       29       4
     Capitalized interest on investment in associates...........      (f)         110      141      205      25
     Goodwill amortization for the year.........................      (g)           6       --        7       1
     Cumulative effect of adopting SFAS No.142..................      (g)          11       --       --      --

     Deferred tax effect of US GAAP adjustments.................               (1,509)  (1,715)  (2,085)   (252)
                                                                               ------   ------   ------   -----
Net income under US GAAP........................................               19,731   26,408   39,975   4,830
                                                                               ======   ======   ======   =====
Basic earnings per share under US GAAP..........................                 0.23     0.30     0.46    0.06
                                                                               ======   ======   ======   =====
Basic earnings per ADS under US GAAP*...........................                22.76    30.46    46.11    5.57
                                                                               ======   ======   ======   =====

* Basic net income per ADS is calculated on the basis that one ADS is equivalent to 100 shares.
</TABLE>

<TABLE>
     The effect on shareholders' equity of significant differences between IFRS
and US GAAP as of December 31, 2003 and 2004 is as follows:
<CAPTION>
                                                                       Reference       Years ended December 31,
                                                                        in note     -----------------------------
                                                                         above        2003       2004       2004
                                                                         -----      -------     -------    ------
                                                                                       RMB        RMB        US$

<S>                                                                         <C>     <C>        <C>         <C>
Shareholders' equity under IFRS........................................             171,515     193,040    23,324
US GAAP adjustments:
     Foreign exchange gains and losses.................................     (a)        (352)       (295)      (36)
     Capitalization of property, plant and equipment...................     (b)         (12)         --        --
     Revaluation of property, plant and equipment......................     (c)     (12,943)     (6,783)     (820)
     Deferred tax adjustments on revaluation...........................     (c)       4,004       2,101       254
     Exchange of assets................................................     (d)        (555)       (532)      (64)
     Reversal of impairment of long-lived assets.......................     (e)        (561)       (532)      (64)
     Capitalized interest on investment in associates..................     (f)         321         526        64
     Goodwill..........................................................     (g)          17          24         3
     Deferred tax effect of US GAAP adjustments........................                 398         301        36
                                                                                    -------     -------    ------
Shareholders' equity under US GAAP.....................................             161,832     187,850    22,697
                                                                                    =======     =======    ======
</TABLE>

                                     F-57
<PAGE>



            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (All amounts in millions of Renminbi, except share data)



35. SUBSEQUENT EVENT

     On December 29, 2004, the Group announced its proposal to privatise
Sinopec Beijing Yanhua Petrochemical Company Limited ("Beijing Yanhua"), a
non-wholly owned subsidiaries in which the Group holds approximately 70% of the
equity interests. According to the proposal, the Group will acquire the entire
1,012,000,000 H shares, representing approximately 30% of the issued share
capital of Beijing Yanhua at HK$ 3.80 per share. The total consideration
required to be paid by the Group was approximately HK$ 3,846 which will be
settled in cash.

     Pursuant to the resolution passed in the Special General Meeting of
Beijing Yanhua on March 4, 2005, the shareholders of the H shares in Beijing
Yanhua agreed to dispose of and sell their shares in Beijing Yanhua to the
Group at the above mentioned price, subject to the approval from the relevant
PRC governmental and regulatory bodies.



                                     F-58
<PAGE>

            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

                    SUPPLEMENTAL INFORMATION ON OIL AND GAS
                        PRODUCING ACTIVITIES (UNAUDITED)
                 (All currency amounts in millions of Renminbi)


     In accordance with the United States Statement of Financial Accounting
Standards No. 69, "Disclosures about Oil and Gas Producing Activities" ("SFAS
No. 69"), this section provides supplemental information on oil and gas
exploration and producing activities of the Group as of December 31, 2002, 2003
and 2004, and for each of the years in the three-year period ended December 31,
2004 in the following six separate tables. Tables I through III provide
historical cost information under US GAAP pertaining to capitalized costs
related to oil and gas producing activities; costs incurred in exploration and
development; and results of operations related to oil and gas producing
activities. Tables IV through VI present information on the Group's estimated
net proved reserve quantities; standardized measure of discounted future net
cash flows; and changes in the standardized measure of discounted future net
cash flows.

<TABLE>
Table I:   Capitalized costs related to oil and gas producing activities
<CAPTION>
                                                                              Years ended December 31,
                                                                          -------------------------------
                                                                            2002        2003       2004
                                                                          --------    --------   --------
                                                                             RMB         RMB        RMB
<S>                                                                       <C>         <C>         <C>
Property cost                                                                  --          --          --
Wells and related equipment and facilities...........................     125,790     143,492     158,422
Supporting equipment and facilities..................................      10,809      13,140      12,324
Uncompleted wells, equipment and facilities..........................       4,526       5,535       9,262
                                                                          -------     -------       -----
Total capitalized costs..............................................     141,125     162,167     180,008
Accumulated depreciation, depletion, amortization and impairment
   allowances........................................................     (62,397)    (70,726)    (79,541)
                                                                          -------     -------     -------
Net capitalized costs................................................      78,728      91,441     100,467
                                                                          =======     =======     =======
</TABLE>

<TABLE>
Table II:   Cost incurred in exploration and development
<CAPTION>
                                                                               Years ended December 31,
                                                                          -------------------------------
                                                                            2002        2003       2004
                                                                          --------    --------   --------
                                                                             RMB         RMB        RMB
<S>                                                                       <C>         <C>         <C>
Exploration..........................................................       5,798       8,109       8,272
Development..........................................................      18,793      19,852      20,681
                                                                          -------     -------     -------
Total cost incurred..................................................      24,591      27,961      28,953
                                                                          =======     =======     =======
</TABLE>

<TABLE>
Table III:   Results of operations for oil and gas producing activities
<CAPTION>

                                                                              Years ended December 31,
                                                                          -------------------------------
                                                                            2002        2003       2004
                                                                          --------    --------   --------
                                                                             RMB         RMB        RMB
<S>                                                                       <C>         <C>         <C>
Revenues
     Sales...........................................................       8,687      11,850      11,833
     Transfers.......................................................      39,407      47,287       60,053
                                                                          -------     -------     -------
                                                                           48,094      59,137      71,886
Production costs excluding taxes.....................................     (15,174)    (16,187)    (17,182)
Exploration expenses.................................................      (4,363)     (6,133)     (6,396)
Depreciation, depletion, amortization and impairment provisions.......     (8,133)     (8,684)    (11,457)
Taxes other than income tax..........................................        (860)       (970)     (1,144)
                                                                          -------     -------     -------
Income before income tax.............................................      19,564      27,163      35,707
Income tax expense...................................................      (6,456)     (8,964)    (11,783)
                                                                          -------     -------     -------
Results of operations from producing activities......................      13,108      18,199      23,924
                                                                          =======     =======     =======
</TABLE>

                                     F-59
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

                    SUPPLEMENTAL INFORMATION ON OIL AND GAS
                 PRODUCING ACTIVITIES (UNAUDITED) - (Continued)
                 (All currency amounts in millions of Renminbi)



     The results of operations for producing activities for the years ended
December 31, 2002, 2003 and 2004 are shown above. Revenues include sales to
unaffiliated parties and transfers (essentially at third-party sales prices) to
other segments of the Group. All revenues reported in this table do not include
royalties to others as there were none. In accordance with SFAS No. 69, income
taxes are based on statutory tax rates, reflecting allowable deductions and tax
credits. General corporate overhead and interest income and expense are
excluded from the results of operations.

Table IV:   Reserve quantities information

     The Group's estimated net proved underground oil and gas reserves and
changes thereto for the years ended December 31, 2002, 2003 and 2004 are shown
in the following table.

     Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas, and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions, i.e., prices
and costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangements, but not
on escalations based upon future conditions. Due to the inherent uncertainties
and the limited nature of reservoir data, estimates of underground reserves are
subject to change as additional information becomes available.

     Proved reserves do not include additional quantities recoverable beyond
the term of the relevant production licenses, or that may result from
extensions of currently proved areas, or from application of improved recovery
processes not yet tested and determined to be economical. The Group's estimated
proved reserves do not include any quantities that are recoverable through
application of tertiary recovery techniques.

     Proved developed reserves are the quantities expected to be recovered
through existing wells with existing equipment and operating methods.

     "Net" reserves exclude royalties and interests owned by others and reflect
contractual arrangements in effect at the time of the estimate.


                                     F-60
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

                    SUPPLEMENTAL INFORMATION ON OIL AND GAS
                 PRODUCING ACTIVITIES (UNAUDITED) - (Continued)
                 (All currency amounts in millions of Renminbi)


<TABLE>
<CAPTION>
                                                                               Years ended December 31,
                                                                            -------------------------------
                                                                             2002        2003         2004
                                                                            ------      ------       ------

<S>                                                                         <C>          <C>          <C>
PROVED DEVELOPED AND UNDEVELOPED RESERVES (OIL) (MILLION BARRELS)
Beginning of year....................................................       3,215       3,320        3,257
Revisions of previous estimates......................................         119         (81)          23
Improved recovery....................................................         126         143          127
Extensions and discoveries...........................................         130         146          134
Production...........................................................        (270)       (271)        (274)
                                                                            -----       -----        -----
End of year..........................................................       3,320       3,257        3,267
                                                                            =====       =====        =====
PROVED DEVELOPED RESERVES
Beginning of year....................................................       2,444       2,732        2,786
                                                                            =====       =====        =====
End of year..........................................................       2,732       2,786        2,808
                                                                            =====       =====        =====
PROVED DEVELOPED AND UNDEVELOPED RESERVES (GAS)
   (billion cubic feet)
Beginning of year....................................................       3,488       3,329        2,888
Revisions of previous estimates......................................
                                                                             (133)       (649)         (95)
Extensions and discoveries...........................................         153         396          447
Production...........................................................        (179)       (188)        (207)
                                                                            -----       -----        -----
End of year..........................................................       3,329       2,888        3,033
                                                                            =====       =====        =====
PROVED DEVELOPED RESERVES
Beginning of year....................................................       1,183       1,056        1,249
                                                                            =====       =====        =====
End of year..........................................................       1,056       1,249        1,398
                                                                            =====       =====        =====
</TABLE>


Table V: Standardized measure of discounted future net cash flows

     The standardized measure of discounted future net cash flows, related to
the above proved oil and gas reserves, is calculated in accordance with the
requirements of SFAS No. 69. Estimated future cash inflows from production are
computed by applying year-end prices for oil and gas to year-end quantities of
estimated net proved reserves. Future price changes are limited to those
provided by contractual arrangements in existence at the end of each reporting
year. Future development and production costs are those estimated future
expenditures necessary to develop and produce year-end estimated proved
reserves based on year-end cost indices, assuming continuation of year-end
economic conditions. Estimated future income taxes are calculated by applying
appropriate year-end statutory tax rates to estimated future pre-tax net cash
flows, less the tax basis of related assets. Discounted future net cash flows
are calculated using 10% midperiod discount factors. This discounting requires
a year-by-year estimate of when the future expenditure will be incurred and
when the reserves will be produced.

     The information provided does not represent management's estimate of the
Group's expected future cash flows or value of proved oil and gas reserves.
Estimates of proved reserve quantities are imprecise and change over time as
new information becomes available. Moreover, probable and possible reserves,
which may become proved in the future, are excluded from the calculations. The
arbitrary valuation prescribed under SFAS No. 69 requires assumptions as to the
timing and amount of future development and production costs. The calculations
are made for the years ended December 31, 2002, 2003 and 2004 and should not be
relied upon as an indication of the Group's future cash flows or value of its
oil and gas reserves.

                                     F-61
<PAGE>


            CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES

                    SUPPLEMENTAL INFORMATION ON OIL AND GAS
                 PRODUCING ACTIVITIES (UNAUDITED) - (Continued)
                 (All currency amounts in millions of Renminbi)



<TABLE>
<CAPTION>
                                                                             Years ended December 31,
                                                                          -------------------------------
                                                                            2002        2003       2004
                                                                          --------    --------   --------
                                                                             RMB         RMB        RMB
<S>                                                                       <C>         <C>         <C>
Future cash flows....................................................     760,468     799,658   1,003,511
Future production costs..............................................    (287,887)   (311,568)   (350,012)
Future development costs.............................................     (26,852)    (23,838)    (25,577)
Future income tax expenses...........................................    (126,440)   (130,224)   (174,060)
                                                                         --------    --------    --------
Undiscounted future net cash flows...................................     319,289     334,028     453,862
10% annual discount for estimated timing of cash flows...............    (142,450)   (146,726)   (204,183)
                                                                         --------    --------    --------
Standardized measure of discounted future net cash flows.............     176,839     187,302     249,679
                                                                         ========    ========    ========
</TABLE>


<TABLE>
Table VI:   Changes in the standardized measure of discounted future net cash flows
<CAPTION>

                                                                             Years ended December 31,
                                                                          -------------------------------
                                                                            2002        2003       2004
                                                                          --------    --------   --------
                                                                             RMB         RMB        RMB
<S>                                                                       <C>         <C>         <C>
RSales and transfers of oil and gas produced, net of production costs.    (26,740)    (41,802)    (46,145)
Net changes in prices and production costs...........................      63,625      11,923      69,305
Net change due to extensions, discoveries and improved recoveries....      23,319      27,721      36,209
Revisions of previous quantity estimates.............................       8,253      (5,951)      2,204
Previously estimated development costs incurred during the year......       6,935       6,865       7,148
Accretion of discount................................................      10,323      15,242      16,176
Net change in income taxes...........................................     (27,793)     (2,992)    (22,733)
Others...............................................................         164        (543)        213
                                                                          -------     -------     -------
Net change for the year..............................................      58,086      10,463      62,377
                                                                          =======     =======     =======
</TABLE>

                                     F-62


<PAGE>

                                   SIGNATURE

         The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.


                                      China Petroleum & Chemical Corporation

                                      By /s/ Chen Ge
                                      --------------
                                      Name:  Chen Ge
                                      Title: Secretary to the Board of Directors


Date:  June 27, 2005

<PAGE>

                             List of Subsidiaries

         A list of China Petroleum & Chemical Corporation's principal
subsidiaries is provide in Note 32 to the consolidated financial statements
included in this annual report following Item 19.