SECURITIES
      ESCROW AGREEMENT

     

    THIS
      SECURITIES ESCROW AGREEMENT (the “Agreement”),
      dated
      as of August 20, 2008, is entered into by and among China New Energy Group
      Company, a Delaware corporation (the “Company”),
      China
      Hand Fund I, LLC, a Delaware limited liability company, for itself and as
      representative (the “Purchaser
      Representative”)
      of any
      additional investors which may become parties to this Agreement (together with
      their respective successors and assigns, each, a “Purchaser”
and
      collectively, the “Purchasers”),
      and
      Escrow, LLC, with an address at 360 Main Street, P.O. Box 391, Washington,
      Virginia 22747 (the “Escrow
      Agent”).
      Capitalized terms used, but not defined herein shall have the meanings set
      forth
      in the Purchase Agreement (as defined below).

     

    WITNESSETH:

     

    WHEREAS,
      the Purchaser Representative will be purchasing on the date hereof (the
“First
      Closing Date”)
      from
      the Company, shares of the Company’s Series A Convertible Preferred Stock, par
      value $0.001 per share (the “Series
      A Preferred”),
      convertible into shares of the Company’s common stock, par value $0.001 per
      share (the “Common
      Stock”),
      and
      certain common stock purchase warrants (the “Warrants”)
      pursuant to a Series A Convertible Preferred Stock Purchase Agreement dated
      as
      of the First Closing Date by and among the Company and the Purchaser
      Representative (the “Purchase
      Agreement”),
      and
      it is contemplated that each of the Purchase Agreement and this Agreement may
      hereafter be amended to provide for the purchase of additional shares of Series
      A Preferred and Warrants (collectively, the “Securities”)
      by
      additional Purchasers at one or more additional closings after the First Closing
      Date (each, a “Subsequent
      Closing”
and
      collectively, the “Subsequent
      Closings”)
      and
      the deposit of additional shares of Series A Preferred in escrow by the Company
      and the additional Purchasers;

     

    WHEREAS,
      as an inducement to the Purchaser Representative to enter into the Purchase
      Agreement, and for additional Purchasers to purchase Securities at one or more
      Subsequent Closings, the Company has agreed (i) immediately prior to the First
      Closing Date and the date of each Subsequent Closing to issue and deposit the
      number of shares of Series A Preferred Stock equal to 30% of the number of
      shares of Series A Preferred Stock issued under the Purchase Agreement and
      in
      each Subsequent Closing to be held by the Escrow Agent for the benefit of the
      Purchasers in the event the Company fails to achieve any of the following
      financial performance thresholds for the 12-month periods ending December 31,
      2008 (“2008”)
      and
      December 31, 2009 (“2009”),
      and
      (ii) upon distribution to Purchasers of any Make Good Escrow Shares for
2008,
      if any,
      the Company shall replenish the Make Good Escrow Shares by issuing and
      delivering the number of shares of Series A Preferred Stock equal to the number
      of Series A Preferred Stock so distributed to be held in escrow for 2009
      distributions:

     

    (a) In
      2008,
      (i) audited and consolidated After-Tax Net Income of at least $4.3
      million1,
      or (ii)
      Earnings Per Share on a Fully-Diluted Basis of at least $[$0.0261] (each of
      the
      performance thresholds set forth in (i) and (ii) above shall be individually
      referred to herein as a “2008
      Target Number”
and
      they are collectively referred to herein as the “2008
      Performance Threshold”);

     

    
      
        

      

       

      1
        Drafting
        Note:
        Company
        to confirm ATNI and EPS numbers and all other financial metrics throughout
        agreement.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b) In
      2009,
      (i) After-Tax Net Income of at least (w) $6.0 million, if the Company receives
      at least $5.4 million in additional gross proceeds from the sale of Securities
      at Subsequent Closings held not later than 30 days after the filing of the
      Company’s Annual Report on Form 10-K for the fiscal year ending December 31,
      2008 (the “10-K
      Filing Date”)
      or (x)
      $4.5 million, if the Company does not receive at least $5.4 million in
      additional gross proceeds from the sale of Securities at Subsequent Closings
      held on or prior to the 10-K Filing Date or (ii) Earnings Per Share on a
      Fully-Diluted Basis of at least (y) $[0.0294], if the Company receives at least
      $5.4 million in additional gross proceeds from the sale of Securities at
      Subsequent Closings held on or prior to the 10-K Filing Date or (z) $[0.0273],
      if the Company does not receive at least $5.4 million in additional gross
      proceeds from the sale of Securities at Subsequent Closings held on or prior
      to
      the 10-K Filing Date (the performance thresholds set forth in (i) and (ii)
      above
      shall be individually referred to herein as a “2009
      Target Number”
and
      they are collectively referred to herein as the “2009
      Performance Threshold”
and
      together with the 2008 Performance Threshold, the “Performance
      Thresholds”
and
      each of the 2008 Target Number and 2009 Target Number is individually referred
      to herein as a “Target
      Number”
and
      collectively referred to herein as the “Target
      Numbers”);
      

     

    WHEREAS,
      as a further inducement to the Purchaser Representative to enter into the
      Purchase Agreement, and for additional Purchasers to purchase Securities at
      one
      or more Subsequent Closings, the Company has agreed immediately prior to the
      First Closing Date and the date of each Subsequent Closing to place the Listing
      Escrow Shares (as hereinafter defined) into escrow for the benefit of the
      Purchasers in the event that shares of Common Stock are not listed and trading
      on a National Stock Exchange by January 31, 2010;

     

    WHEREAS,
      as an incentive to the members of management of the Company set forth on Exhibit
      A attached hereto (“Management”)
      to
      cause the Company to meets its financial projections, the Purchaser
      Representative has agreed to place Purchaser Deposited Escrow Shares (as
      hereinafter defined) into escrow for the benefit of the Purchasers and each
      additional Purchaser which becomes a party to this Agreement will deposit
      additional Purchaser Deposited Escrow Shares into escrow to transfer to
      Management in the event the Company achieves all of the 2008 Performance
      Threshold and the 2009 Performance Threshold; and 

     

    WHEREAS,
      the Company and the Purchaser Representative have requested, and the Additional
      Purchasers, by becoming parties to this Agreement will request, that the Escrow
      Agent hold the Company Deposited Escrow Shares (as herein after defined) and
      the
      Purchaser Deposited Escrow Shares (as hereinafter defined) on the terms and
      conditions set forth in this Agreement and the Escrow Agent has agreed to act
      as
      escrow agent pursuant to the terms and conditions of this
      Agreement.

     

    NOW,
      THEREFORE, in consideration of the covenants and mutual promises contained
      herein and other good and valuable consideration, the receipt and legal
      sufficiency of which are hereby acknowledged and intending to be legally bound
      hereby, the parties agree as follows:


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      I

     

    TERMS
      OF
      THE ESCROW

     

    1.1. The
      parties hereby agree to establish an escrow account with the Escrow Agent
      whereby the Escrow Agent shall hold the Company Deposited Escrow Shares and
      the
      Purchaser Deposited Escrow Shares as contemplated by this
      Agreement.

     

    1.2. Upon
      the
      execution of this Agreement, the Company shall issue and deliver to the Escrow
      Agent a stock certificate or stock certificates evidencing an aggregate of
      557,212 shares of Series A Preferred (which number of shares of Series A
      Preferred is equivalent to 30% of the number of shares of Series A Preferred
      to
      be issued and sold to the Purchaser Representative on the First Closing Date
      and
      which shares of Series A Preferred may be converted into 19,502,412 shares
      of
      Common Stock). Immediately prior to each Subsequent Closing, the Company shall
      issue and deliver to the Escrow Agent a stock certificate or stock certificates
      evidencing an aggregate number of shares of Series A Preferred equal to 30%
      of
      the number of shares of Series A Preferred to be issued and sold to the
      Additional Purchasers on the closing date of the Subsequent Closing). In
      addition, the Company will issue a stock certificate or stock certificates
      evidencing such additional number of shares of Series A Preferred or Common
      Stock as may be required to be deposited pursuant to Section 1.3(iv) hereof.
      All
      of the shares of Series A Preferred described in this Section 1.2 shall be
      collectively referred to in this Agreement as the “Company
      Deposited Escrow Shares”).
      All
      Company Deposited Escrow Shares shall be accompanied by stock powers executed
      in
      blank with signature medallion guaranteed.

     

    1.3. The
      parties hereby agree that the Company Deposited Escrow Shares shall be delivered
      based on the achievement of the Performance Thresholds as set forth
      below:

    


    (i) If
      either
      or both of the After-Tax Net Income or Earnings Per Share on a Fully-Diluted
      Basis for 2008 or 2009 is less than the applicable Target Number for such year,
      then if the Percentage Shortfall (as hereinafter defined) for such year, is
      less
      than
      fifty percent (50%), but equal or greater than fifteen percent (15%), then
      an
      Adjustment Percentage for such year shall be determined. For purposes of this
      Section, the “Percentage
      Shortfall”
shall
      mean the greater of (A) the percentage obtained by dividing
      (w) the
      amount of the shortfall of the After-Tax Net Income from the applicable Target
      Number by
      (x) the
      applicable Target Number for such year or (B) the percentage obtained by
dividing
      (y) the
      amount of the shortfall of the Earnings
      Per Share on a Fully-Diluted Basis for such year from
      the
      applicable Target Number for such year by
      (z) the
      applicable Target Number for such year. For purposes of this Section, the
“Adjustment
      Percentage”
for
      2008 or 2009 shall mean the percentage that the Percentage Shortfall for such
      year bears to fifty percent (50%). Within five days after the determination
      of
      the Percentage Shortfall for 2008 and/or 2009 the Purchaser Representative
      and
      the Company shall give joint written instructions to the Escrow Agent to, and
      upon receipt of such written instructions, the Escrow Agent shall, within five
      days after receipt of such instructions deliver to the Purchasers on a pro
      rata
      basis such number of shares of Series A Preferred as is determined by
      multiplying the Adjustment Percentage for such year by the total number of
      Company Deposited Escrow Shares then required to be in escrow. In the case
      of a
      delivery of less than all of the shares of the Company Deposited Escrow Shares
      in respect of the computation of the Adjustment Percentage for 2008, the Escrow
      Agent shall retain in escrow the balance of the Company Deposited Escrow Shares
      which are not required to be delivered to the Purchasers. For example, if the
      Percentage Shortfall for 2008 is 20%, the Adjustment Percentage would be 40%,
      and 40% of the total number of Company Deposited Escrow Shares then required
      to
      be in escrow would be delivered to the Purchasers on a pro rata basis, with
      the
      balance being retained by the Escrow Agent pursuant to this
      Agreement. 


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (ii) If
      the
      Percentage Shortfall for 2008 or 2009, as applicable, is equal to or greater
      than fifty percent (50%), then within five days after the determination of
      the
      Percentage Shortfall for 2008 and/or 2009 the Purchaser Representative and
      the
      Company shall give joint written instructions to the Escrow Agent, and upon
      receipt of such written instructions, the Escrow Agent shall within five days
      after receipt of such instructions, deliver all of the remaining Company
      Deposited Escrow Shares then held by the Escrow Agent to Purchasers on a pro
      rata basis. 

     

    (iii) If
      the
      Percentage Shortfall for 2008 is less than fifteen percent (15%), then all
      of
      the Company Deposited Escrow Shares shall remain in escrow for 2009 to be
      distributed in accordance with paragraphs (i) and (ii) of this Section 1.3.
      If
      the Percentage Shortfall for 2009 is less than fifteen percent (15%), then
      the
      Purchaser Representative and the Company shall give joint written instructions
      to the Escrow Agent to, and upon receipt of such written instructions, the
      Escrow Agent shall within five days after receipt of such instructions, return
      to the Company for cancellation all of the Company Deposited Escrow Shares
      which
      remain in escrow. 

     

    (iv) Upon
      distribution to the Purchasers of Company Deposited Escrow Shares for 2008
      pursuant to Section 1.3(i) or 1.3(ii), the Company shall within 10 days
      replenish the Company Deposited Escrow Shares by issuing and delivering the
      number of shares of Series A Preferred equal to the number of shares of Series
      A
      Preferred so distributed for 2008. 

     

    (v) The
      determination regarding the number and the distribution, if any, of Company
      Deposited Escrow Shares to be distributed to the Purchasers pursuant to this
      Section 1.3 shall be made within five (5) Trading Days after the date the
      Company is required to file its Annual Report on Form 10-K for the applicable
      fiscal year with the Commission (after giving effect to any extension pursuant
      to Rule 12b-25 of the Exchange Act). In the event that the Company does not
      file
      its Annual Report on Form 10-K for the year ended December 31, 2008 or 2009,
      as
      applicable, with the Commission within thirty (30) days after the date such
      filing was required, after giving effect to any extension pursuant to Rule
      12b-25 of the Exchange Act, all of the Company Deposited Escrow Shares shall
      be
      delivered to the Purchasers on a pro rata basis within five (5) Trading Days
      following the expiration of such thirty (30) day period. 

     

    (vi) Notwithstanding
      anything to the contrary set forth herein, only those Purchasers who own shares
      of Series A Preferred issued under the Purchase Agreement and remain
      shareholders of the Company at the time that any Company Deposited Escrow Shares
      become deliverable hereunder shall be entitled to their pro rata portion of
      such
      Company Deposited Escrow Shares calculated based on their ownership interest
      at
      the time when the Company Deposited Escrow Shares become deliverable hereunder.
      Any Company Deposited Escrow Shares not delivered to Purchasers because the
      Purchasers no longer hold shares of Series A Preferred acquired under the
      Purchase Agreement shall remain in escrow with the Escrow Agent until
      transferred either to the Purchasers or returned to the Company pursuant to
      Section 1.3(ii) or 1.3(iii), as applicable.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (vii) Notwithstanding
      anything to the contrary contained in this Section 1.3 or in the Purchase
      Agreement, the Parties agree that for purposes of determining whether or not
      the
      Target Numbers have been achieved, 

     

    (A) the
      release of any or all of the Company Deposited Escrow Shares shall not be
      counted as an expense, charge, or other deduction from revenues in calculating
      net income even though GAAP may require contrary treatment,

     

    (B) any
      registration delay payments arising under the Registration Rights Agreement
      that
      are accrued or paid by the Company to any Series A Purchaser will be excluded
      from the calculation of net income, and 

     

    (C) any
      increase in taxes payable by the Company or any Subsidiary as a result of
      recently adopted PRC tax laws or any related implementing regulations
      promulgated for the purpose of making more equal the tax treatment of foreign
      invested entities and domestic entities shall not be included as an expense
      in
      calculating net income.

     

    (viii) So
      long
      as the Company Deposited Escrow Shares remain in escrow, such shares shall
      not
      be counted in calculating a quorum for stockholder voting purposes nor shall
      such shares be voted at any meeting of stockholders or included in a written
      consent.

     

    1.4. (i)
      Upon
      the execution of this Agreement, the Purchaser Representative shall deliver
      to
      the Escrow Agent a stock certificate or stock certificates evidencing an
      aggregate of 37,148 shares of Series A Preferred (which number of shares of
      Series A Preferred is equivalent to 2.0% of the number of shares of Series
      A
      Preferred issued and sold to the Purchaser Representative on the First Closing
      Date and which shares of Series A Preferred may be converted into 1,300,161
      shares of Common Stock). At each Subsequent Closing, each additional Purchaser
      shall deliver to the Escrow Agent a stock certificate or stock certificates
      evidencing a number of shares of Series A Preferred equivalent to 2.0% of the
      number of shares of Series A Preferred issued and sold to such additional
      Purchaser on the closing date of the Subsequent Closing. Such shares shall
      be
      collectively referred to in this Agreement as the “Purchaser
      Deposited Escrow Shares”).
      All
      Purchaser Deposited Escrow Shares shall be accompanied by stock powers executed
      in blank with signature medallion guaranteed.

     

    (ii)
      If
      the Company achieves both the 2008 Performance Threshold and the 2009
      Performance Threshold, then within five Trading Days after the filing of the
      Company’s Annual Report on Form 10-K for the fiscal year ending December 31,
      2009 the Company and the Purchaser Representative shall give joint written
      instructions to the Escrow Agent to, and upon receipt of such instructions,
      the
      Escrow Agent shall within five days after receipt of such instructions, transfer
      all of the Purchaser Deposited Escrow Shares to Management, pro rata in
      accordance with the percentages set forth in Exhibit A. In such instance, the
      Purchaser Deposited Escrow Shares shall be converted to common stock in
      accordance with their terms prior to distribution to
      Management.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (iii)
      If
      the Company fails to achieve the 2008 Performance Threshold, then within five
      Trading Days after the filing of the Company’s Annual Report on Form 10-K for
      the fiscal year ending December 31, 2008 the Company and the Purchaser
      Representative shall give joint written instructions to the Escrow Agent to,
      and
      upon receipt of such instructions, the Escrow Agent shall within five days
      after
      receipt of such instructions, transfer all of the Purchaser Deposited Escrow
      Shares to the Purchasers who deposited such shares. 

     

    (iv)
      If
      the Company achieves the 2008 Performance Threshold, but fails to achieve the
      2009 Performance Threshold, then within five Trading Days after the filing
      of
      the Company’s Annual Report on Form 10-K for the fiscal year ending December 31,
      2009 the Company and the Purchaser Representative shall give joint written
      instructions to the Escrow Agent to, and upon receipt of such instructions,
      the
      Escrow Agent shall within five days after receipt of such instructions, transfer
      all of the Purchaser Deposited Escrow Shares to the Purchasers who deposited
      such shares. 

     

    1.5. The
      Company will provide the Purchaser Representative with (i) the Company’s audited
      financial statements for 2008 and 2009, prepared in accordance with US GAAP,
      on
      or before March 31, 2009 (or such later date on which the Company has filed
      its
      annual report on Form 10-K for 2008 fiscal year) and March 31, 2010 (or such
      later date on which the Company has filed its annual report on Form 10-K for
      2009 fiscal year), respectively, so as to allow the Purchaser Representative
      the
      opportunity to evaluate whether the 2008 Performance Threshold and the 2009
      Performance Threshold were attained.

     

    1.6. The
      parties hereby agree that the Listing Escrow Shares (as hereinafter defined)
      shall be deposited in escrow and as set forth below:

     

    (a) Upon
      the
      execution of this Agreement, the Company shall issue and deliver to the Escrow
      Agent a stock certificate or stock certificates evidencing an aggregate of
      __________ shares of Series A Preferred (which number of shares of Series A
      Preferred is equivalent to 2.5% of the number of shares of Series A Preferred
      to
      be issued and sold to the Purchaser Representative on the First Closing Date
      and
      which shares of Series A Preferred may be converted into __________ shares
      of
      Common Stock). Immediately prior to each Subsequent Closing, the Company shall
      issue and deliver to the Escrow Agent a stock certificate or stock certificates
      evidencing an aggregate of shares of Series A Preferred equivalent to 2.5%
      of
      the number of shares of Series A Preferred to be issued and sold to the
      additional Purchasers on the closing date of the Subsequent Closing). All of
      the
      shares of Series A Preferred described in this Section 1.6 shall be collectively
      referred to in this Agreement as the “Listing
      Escrow Shares”).
      

     

    (b) In
      the
      event shares of Common Stock are not listed and trading on a National Stock
      Exchange by January 31, 2010, the
      Purchaser Representative and the Company shall within five days thereafter
      give
      joint written instructions to the Escrow Agent to, and upon receipt of such
      written instructions, the Escrow Agent shall, within five days after receipt
      of
      such instructions deliver to the Purchasers on a pro rata basis all of the
      Listing Escrow Shares. In
      the
      event shares of Common Stock are listed and trading on a National Stock Exchange
      by January 31, 2010, the
      Company and Purchaser Representative shall within five days after such listing
      give joint written instructions to the Escrow Agent to, and upon receipt of
      such
      written instructions, the Escrow Agent shall, within five days after receipt
      of
      such instructions deliver to the Company all of the Listing Escrow Shares and
      the Company shall cancel all of such Listing Escrow Shares.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      II

    REPRESENTATIONS
      OF THE COMPANY

     

    2.1. The
      Company hereby represents and warrants to the Purchasers and the Purchaser
      Representative as follows:

     

    (i) The
      Company Deposited Escrow Shares and the Listing Escrow Shares being placed
      into
      escrow immediately prior to the First Closing Date and to be placed into escrow
      prior to the closing date of each Subsequent Closing are or will be upon release
      from escrow in accordance with this Agreement validly issued, fully paid and
      nonassessable shares of the Company, free and clear of all pledges, liens,
      claims and encumbrances, except encumbrances created by this Agreement. There
      are no restrictions on the ability of the Company to issue and deposit in escrow
      the Company Deposited Escrow Shares or Listing Escrow Shares or to enter into
      this Agreement other than transfer restrictions under applicable federal and
      state securities laws. Upon any delivery to the Purchasers of Company Deposited
      Escrow Shares or Listing Escrow Shares placed into escrow pursuant to this
      Agreement, the Purchasers will acquire good and valid title to such Company
      Deposited Escrow Shares or Listing Escrow Shares, free and clear of any pledges,
      liens, claims and encumbrances.

     

    (ii) The
      performance of this Agreement and compliance with the provisions hereof will
      not
      violate any provision of any law applicable to the Company and will not conflict
      with or result in any breach of any of the terms, conditions or provisions
      of,
      or constitute a default under, or result in the creation or imposition of any
      lien, charge or encumbrance upon, any of the properties or assets of the Company
      pursuant to the terms of the certificate of incorporation or by-laws of the
      Company or any indenture, mortgage, deed of trust or other agreement or
      instrument binding upon the Company or affecting the Company Deposited Escrow
      Shares or Listing Escrow Shares. No notice to, filing with, or authorization,
      registration, consent or approval of any governmental authority or other person
      is necessary for the execution, delivery or performance of this Agreement or
      the
      consummation of the transactions contemplated hereby by the
      Company.

     

    ARTICLE
      III

    REPRESENTATIONS
      OF THE PURCHASERS

     

    3.1. Each
      Purchaser hereby severally represents and warrants to the Company and the
      Purchaser Representative as follows:

     

    (i) The
      Purchaser Deposited Escrow Shares being placed into escrow at the First Closing
      Date and to be placed into escrow prior to the closing date of each Subsequent
      Closing are or will be owned by the Purchaser free and clear of all pledges,
      liens, claims and encumbrances, except encumbrances created by this Agreement.
      There are no restrictions on the ability of the Purchaser to deposit in escrow
      the Purchaser Deposited Escrow Shares or to enter into this Agreement other
      than
      transfer restrictions under applicable federal and state securities laws. Upon
      any delivery to Management of Purchaser Deposited Escrow Shares placed into
      escrow pursuant to this Agreement, Management will acquire good and valid title
      to such Purchaser Deposited Escrow Shares, free and clear of any pledges, liens,
      claims and encumbrances.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (ii) The
      performance of this Agreement and compliance with the provisions hereof will
      not
      violate any provision of any law applicable to the Purchaser and will not
      conflict with or result in any breach of any of the terms, conditions or
      provisions of, or constitute a default under, or result in the creation or
      imposition of any lien, charge or encumbrance upon, any of the properties or
      assets of the Purchaser pursuant to the terms of any indenture, mortgage, deed
      of trust or other agreement or instrument binding upon the Purchaser or
      affecting the Purchaser Deposited Escrow Shares. No notice to, filing with,
      or
      authorization, registration, consent or approval of any governmental authority
      or other person is necessary for the execution, delivery or performance of
      this
      Agreement or the consummation of the transactions contemplated hereby by the
      Purchaser.

    


    ARTICLE
      IV

    ESCROW
      AGENT

    


    4.1
      Interpleader.
      In the
      event this Agreement, the Company Deposited Escrow Shares, the Purchaser
      Deposited Escrow Shares or the Escrow Agent becomes the subject of litigation,
      or if the Escrow Agent shall desire to do so for any other reason, the Company
      authorizes the Escrow Agent, at its option, to deposit the Company Deposited
      Escrow Shares, the Listing Escrow Shares and/or the Purchaser Deposited Escrow
      Shares with the clerk of the court in which the litigation is pending, or a
      court of competent jurisdiction if no litigation is pending, and thereupon
      the
      Escrow Agent shall be fully relieved and discharged of any further
      responsibility with regard thereto. The Company also authorizes the Escrow
      Agent, if it receives conflicting claims to the Company Deposited Escrow Shares,
      and/or the Purchaser Deposited Escrow Shares, is threatened with litigation
      or
      if the Escrow Agent shall desire to do so for any other reason, to interplead
      all interested parties in any court of competent jurisdiction and to deposit
      the
      Company Deposited Escrow Shares, the Listing Escrow Shares and/or the Purchaser
      Deposited Escrow Shares with the clerk of that court and thereupon the Escrow
      Agent shall be fully relieved and discharged of any further responsibility
      hereunder to the parties from which they were received.

    


    4.2
       Exculpation
      and Indemnification of Escrow Agent

    


    (a)
      The
      Escrow Agent shall have no duties or responsibilities other than those expressly
      set forth herein. The Escrow Agent shall have no duty to enforce any obligation
      of any person to make any payment or delivery, or to direct or cause any payment
      or delivery to be made, or to enforce any obligation of any person to perform
      any other act. The Escrow Agent shall be under no liability to the other parties
      hereto or anyone else, by reason of any failure, on the part of any party hereto
      or any maker, guarantor, endorser or other signatory of a document or any other
      person, to perform such person’s obligations under any such document. Except for
      amendments to this Escrow Agreement referenced below, and except for written
      instructions given to the Escrow Agent by the Company and the Purchaser
      Representative relating to the Company Deposited Shares, the Listing Escrow
      Shares and the Purchaser Deposited Escrow Shares, the Escrow Agent shall not
      be
      obligated to recognize any agreement between or among any of the other parties,
      notwithstanding that references hereto may be made herein and whether or not
      it
      has knowledge thereof. 


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    (b)
      The
      Escrow Agent shall not be liable to the Company, the Purchaser Representative,
      any Purchaser or to anyone else for any action taken or omitted by it, or any
      action suffered by it to be taken or omitted, in good faith and acting upon
      any
      order, notice, demand, certificate, opinion or advice of counsel (including
      counsel chosen by the Escrow Agent), statement, instrument, report, or other
      paper or document (not only as to its due execution and the validity and
      effectiveness of its provisions, but also as to the truth and acceptability
      of
      any information therein contained), which is believed by the Escrow Agent to
      be
      genuine and to be signed or presented by the proper person or persons. The
      Escrow Agent shall not be bound by any of the terms thereof, unless evidenced
      by
      written notice delivered to the Escrow Agent signed by the proper party or
      parties and, if the duties or rights of the Escrow Agent are affected, unless
      it
      shall give its prior written consent thereto.

    


    (c)
      The
      Escrow Agent shall not be responsible for the sufficiency or accuracy of the
      form, or of the execution, validity, value or genuineness of, any document
      or
      property received, held or delivered to it hereunder, or of any signature or
      endorsement thereon, or for any lack of endorsement thereon, or for any
      description therein; nor shall the Escrow Agent be responsible or liable to
      the
      Company, the Purchaser Representative, any Purchaser or to anyone else in any
      respect on account of the identity, authority or rights, of the person executing
      or delivering or purporting to execute or deliver any document or property
      or
      this Escrow Agreement. 

    


    (d)
      The
      Escrow Agent shall have the right to assume, in the absence of written notice
      to
      the contrary from the proper person or persons, that a fact or an event, by
      reason of which an action would or might be taken by the Escrow Agent, does
      not
      exist or has not occurred, without incurring liability to the Company, the
      Purchaser Representative, any Purchaser or to anyone else for any action taken
      or omitted to be taken or omitted, in good faith and in the exercise of its
      own
      best judgment, in reliance upon such assumption.

    


    (e)
      The
      Escrow Agent shall be indemnified and held harmless against any liability for
      taxes and for any penalties in respect of taxes, on any investment income or
      payments with respect to the Company Deposited Escrow Shares and the Purchaser
      Deposited Escrow Shares in the manner provided in Section 4.2 (f).

    


    (f)
      The
      Escrow Agent will be indemnified and held harmless by the Company from and
      against all expenses, including all counsel fees and disbursements, or loss
      suffered by the Escrow Agent in connection with any action, suit or proceedings
      involving any claim, or in connection with any claim or demand, which in any
      way, directly or indirectly, arises out of or relates to this Escrow Agreement,
      the services of the Escrow Agent hereunder, except for claims relating to gross
      negligence by Escrow Agent or breach of this Escrow Agreement by the Escrow
      Agent, or the monies or other property held by it hereunder or for willful
      misconduct of the Escrow Agent. Promptly after the receipt of the Escrow Agent
      of notice of any demand or claim or the commencement of any action, suit or
      proceeding, the Escrow Agent shall, if a claim in respect thereof is to be
      made
      against the Company, notify the Company thereof in writing, but the failure
      by
      the Escrow Agent to give such notice shall not relieve the Company from any
      liability which the Company may have to the Escrow Agent hereunder.
      Notwithstanding any obligation to make payments and deliveries hereunder, the
      Escrow Agent may retain and hold for such time as it deems necessary such amount
      of monies or property, including shares of the Company’s capital stock as it
      shall, from time to time, in its sole discretion, seem sufficient to indemnify
      itself for any such loss or expense and for any amounts due it under Section
      7.



    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    (g)
      For
      purposes hereof, the term “expense or loss” shall include all amounts paid or
      payable to satisfy any claim, demand or liability, or in settlement of any
      claim, demand, action, suit or proceeding settled with the express written
      consent of the Escrow Agent, and all costs and expenses, including, but not
      limited to, counsel fees and disbursements, paid or incurred in investigating
      or
      defending against any such claim, demand, action, suit or proceeding.


     

    ARTICLE
      V

     

    TERMINATION
      OF AGREEMENT

    


    5.1 This
      Escrow Agreement shall terminate upon delivery by the Escrow Agent in accordance
      with this Agreement of all of the Company Deposited Escrow Shares, the Listing
      Escrow Shares and Purchaser Deposited Escrow Shares, provided that the rights
      of
      the Escrow Agent and the obligations of the Company under Article IV shall
      survive the termination hereof.

    


    5.2 The
      Escrow Agent may resign at any time and be discharged from its duties as Escrow
      Agent hereunder by giving the Company and the Purchaser Representative at least
      five days written notice thereof (the “Notice
      Period”).
      As
      soon as practicable after its resignation, the Escrow Agent shall, if it
      receives notice from the Company within the Notice Period, turn over to a
      successor escrow agent appointed by the Company all of the Company Deposited
      Escrow Shares, the Listing Escrow Shares and Purchaser Deposited Escrow Shares
      then held by the Escrow Agent upon presentation of the document appointing
      the
      new escrow agent and its acceptance thereof. If no new agent is so appointed
      within the Notice Period, the Escrow Agent may deposit the Company Deposited
      Escrow Shares and Purchaser Deposited Escrow Shares with the clerk of a court
      of
      competent jurisdiction in accordance with Section 4.1 of this Agreement.


    


    ARTICLE
      VI

    COMPENSATION
      OF ESCROW AGENT

    


    The
      Escrow Agent shall be entitled to the following compensation from the
      Company:


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    6.1 Documentation
      Fee: The
      Company shall pay a documentation fee to the Escrow Agent of $____________,
      on
      the First Closing Date. 

    


    6.2 Delivery
      Fee.
      The
      Company shall pay a fee of $_______ to the Escrow Agent each time during the
      term of the Agreement in which the Escrow Agent delivers any of Company
      Deposited Escrow Shares, the Listing Escrow Shares and Purchaser Deposited
      Escrow Shares.

     

    ARTICLE
      VII

    MISCELLANEOUS

     

    7.1 No
      waiver
      or any breach of any covenant or provision herein contained shall be deemed
      a
      waiver of any preceding or succeeding breach thereof, or of any other covenant
      or provision herein contained. No extension of time for performance of any
      obligation or act shall be deemed an extension of the time for performance
      of
      any other obligation or act.

     

    7.2 All
      notices, communications and instructions required or desired to be given under
      this Agreement must be in writing and shall be deemed to be duly given if sent
      by registered or certified mail, return receipt requested, or overnight courier
      to the following addresses:

     

    If
      to
      Escrow Agent:

    


    Escrow,
      LLC

    360
      Main
      Street

    P.O.
      Box
      391

    Washington,
      Virginia 22747

    Attt:
      Jonnie Zarecor

    Tel
      No.:
      800-984-2155 or 540-675-2155

    Fax
      No.:
      540-675-3155

    Email:
      

    


    If
      to the
      Company:

    China
      New
      Energy Group Company

    c/o
      Tianjin Sing Ocean Public Utility Development Co., Ltd.

    17th
      Floor, HongJi Building, JinWei Road

    HeBei
      District, Tianjin, China

    People’s
      Republic of China

    Attention:
      Jia Ji Shang

    Tel: 
       (86 22) 2804 8651

    Fax:
       (86 22) 2804 8657

    Email: jameswang@etlg.net


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    With
      a
      copy to:

    Thelen
      Reid Brown Raysman & Steiner LLP

    701
      8th
      Street NW

    Washington,
      D.C. 20001

    Attn.:
      Louis A. Bevilacqua, Esq.

    Tel.
      No.:
      (202) 508-4281

    Facsimile:
      (202) 508-4321

    Email:
      lbevilacqua@thelen.com 

     

    If
      to the
      Purchaser  

    Representative:
       

    


    China
      Hand Fund I, LLC

    558
      Lime
      Rock Road

    Lakeville,
      CT  06039

    Attn:
      Mary Fellows

    Tel.
      No.:
      860-435-7000

    Fax
      No.:
      860-435-6540

    Email:
      mfellows@kuhnsbrothers.com

     

    or
      to
      such other address and to the attention of such other person as any of the
      above
      may have furnished to the other parties in writing and delivered in accordance
      with the provisions set forth above.

     

    7.3 This
      Escrow Agreement shall be binding upon and shall inure to the benefit of the
      permitted successors and permitted assigns of the parties hereto.

    


    7.4 This
      Escrow Agreement and the rights and obligations hereunder of the Company may
      not
      be assigned. This Escrow Agreement and the rights and obligations hereunder
      of
      the Escrow Agent may be assigned by the Escrow Agent. This Escrow Agreement
      shall be binding upon and inure to the benefit of each party’s respective
      successors, heirs and permitted assigns. No other person shall acquire or have
      any rights under or by virtue of this Escrow Agreement. This Escrow Agreement
      may not be changed orally or modified, amended or supplemented without an
      express written agreement executed by the Escrow Agent, the Company and the
      Purchaser Representative. This Escrow Agreement is intended to be for the sole
      benefit of the parties hereto and the Purchasers and their respective
      successors, heirs and permitted assigns, and none of the provisions of this
      Escrow Agreement are intended to be, nor shall they be construed to be, for
      the
      benefit of any third person.

    


    7.5 This
      Escrow Agreement shall be construed without regard to any presumption or other
      rule requiring construction against the party causing such instrument to be
      drafted. The terms “hereby,” “hereof,” “hereunder,” and any similar terms, as
      used in this Escrow Agreement, refer to the Escrow Agreement in its entirety
      and
      not only to the particular portion of this Escrow Agreement where the term
      is
      used. The word “person” shall mean any natural person, partnership, corporation,
      government and any other form of business of legal entity. All words or terms
      used in this Escrow Agreement, regardless of the number or gender in which
      they
      were used, shall be deemed to include any other number and any other gender
      as
      the context may require. This Escrow Agreement shall not be admissible in
      evidence to construe the provisions of any prior agreement. 


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    7.6 The
      parties hereto expressly agree that this Escrow Agreement shall be governed
      by,
      interpreted under and construed and enforced in accordance with the laws of
      the
      State of New York, without regard to conflicts of law principles that would
      result in the application of the substantive laws of another jurisdiction.
      Each
      of the parties hereby irrevocably consents to the jurisdiction of the courts
      of
      the State of New York and of any Federal court located in such state in
      connection with any action, suit or proceedings arising out of or relating
      to
      this Escrow Agreement or any action taken or omitted hereunder, and waives
      personal service of any summons, complaint or other process and agrees that
      the
      service thereof may be made by certified or registered mail directed to it
      at
      the address for notices set forth in Section 7.2.

     

    7.7 The
      Escrow Agent’s duties hereunder may be altered, amended, modified or revoked
      only by a writing signed by the Company, the Purchaser Representative and the
      Escrow Agent.

    


    7.8 The
      representations and warranties contained in this Escrow Agreement shall survive
      the execution and delivery hereof and any investigations made by any party.
      The
      headings in this Escrow Agreement are for purposes of reference only and shall
      not limit or otherwise affect any of the terms thereof. 

    


    7.9 This
      Escrow Agreement may be executed in a number of counterparts, by facsimile,
      each
      of which shall be deemed to be an original as of those whose signature appears
      thereon, and all of which shall together constitute one and the same instrument.
      This Escrow Agreement shall become binding when one or more of the counterparts
      hereof, individually or taken together, are signed by all the
      parties.

     

    7.10 If
      the
      Escrow Agent reasonably requires other or further instruments in connection
      with
      this Escrow Agreement or obligations in respect hereto, the necessary parties
      hereto shall join in furnishing such instruments.

     

    [Signature
      Page Follows]


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    [SIGNATURE
      PAGE TO SECURITIES ESCROW AGREEMENT]

     

    IN
      WITNESS WHEREOF, the parties hereto have executed this Agreement as of this
      20th
      day of
      August, 2008.

     

    CHINA
      NEW ENERGY GROUP COMPANY

    
      	 	 
	
              By:

            	
              /s/
                Jiaji Shang

            
	 	
              Name:
                Jiaji Shang

            
	 	
              Title:
                Chairman & CEO

            
	 	 
	
              PURCHASER
                REPRESENTATIVE:

            
	 
	
              CHINA
                HAND FUND I, LLC

            
	 	 
	
              By:

            	
              /s/
                John D. Kuhns

            
	 	
              Name:
                John D. Kuhns

            
	 	
              Title:
                Member-Manager

            
	 	 
	
              ESCROW
                AGENT:

            
	 
	
              ESCROW,
                LLC

            
	 	 
	
              By:

            	 
	 	
              Name:
                

            
	 	
              Title:
                

            


    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    EXHIBIT
      A

    


    MANAGEMENT

    

      
        	
                Name

              	 	
                Percentage
                  of Purchaser Deposited Escrow 

                Shares
                  to Which Entitled if Performance 

                Thresholds
                  are Attained