China
      New
      Energy Group Company

    17th
      Floor, HongJi Building, JinWei Road

    HeBei
      District, Tianjin, China

    


    August
      20, 2008

    


    China
      Hand Fund I, LLC

    558
      Lime
      Rock Road

    Lime
      Rock, CT 06039

    Attn:
      Gregory Dryer

    


    
      	 	
              Re:

            	
              Series
                A Convertible Preferred Stock Securities Purchase Agreement by and
                between
                China New Energy Group Company and China Hand Fund I,
                LLC

            


    

     

    Dear
      Gregory:

     

    In
      connection with the Series A Convertible Preferred Stock Securities Purchase
      Agreement (the “Purchase
      Agreement”),
      dated
      August 8, 2008, between China New Energy Group Company (the “Company”)
      and
      China Hand Fund I, LLC (together with its successors and assigns, collectively,
      “China
      Hand”),
      we
      hereby agree that the Company will, following the closing of the transactions
      contemplated by the Purchase Agreement (the “Closing”),
      undertake the following actions (collectively, the “Company
      Obligations”):

     

    
      	 	
              1.

            	
              The
                Company shall obtain, or cause Tianjin SingOcean Public Utility
                Development Co., Ltd. (“SingOcean”)
                to obtain, the relevant governmental permits and/or certificates
                regarding
                project application, land use, construction and operation of Tianjin
                SingOcean Public Utility Development Co., Ltd. - Dashiqiao Division
                and
                its Dashiqiao
                Pipeline Gas Engineering Construction
                Project;

            


    

     

    
      	 	
              2.

            	
              The
                Company shall cause Willsky Development, Ltd. (“Willsky”)
                to contribute the remaining $5,445,000 due to the registered capital
                of
                SingOcean, and shall obtain all relevant governmental approvals and
                certificates indicating that SingOcean is a validly existing company
                in
                the People’s Republic of China (“PRC”)
                and is in good standing in accordance with PRC law;
                and

            


    

     

    
      	 	
              3.

            	
              The
                Company shall cause SingOcean to replace its existing foreign exchange
                registration certificate in accordance with relevant PRC law, and
                shall
                have such new foreign exchange registration certificate recorded
                with, and
                examined by, the relevant governmental authority.
                

            


    

     

    
      	 	
              4.

            	
              The
                Company shall obtain, or cause SingOcean to obtain, a legal opinion
                from
                its PRC counsel with respect to the matters outlined in paragraphs
                1
                through 3 above in a form that is reasonably satisfactory to China
                Hand.
                

            


    

     

    The
      Company hereby agrees that all actions and requirements of each of the Company
      Obligations will be performed to the satisfaction of China Hand and its legal
      counsel located in the People’s Republic of China within seventy (70) days of
      the Closing (the “Cure
      Period”)
      that
      if the Company Obligations are not satisfied within the Cure Period, that the
      Company shall be obligated to pay to China Hand, as liquidated damages and
      not
      as a penalty, $90,000, representing one percent (1%) of China Hand’s investment
      pursuant to the Purchase Agreement, on the seventy first (71st)
      day
      following the Closing, and an additional $90,000 every thirty (30) days
      thereafter until the Company Obligations have been satisfied (the “Liquidated
      Damages”);
      provided, however, that no Liquidated Damages shall be due to China Hand
      hereunder if the Company Obligations are satisfied on or before the ninetieth
      (90th)
      day
      following the Closing; provided further, that any Liquidated Damages due
      hereunder shall be payable on a pro-rata basis until the Company Obligations
      are
      satisfied. Notwithstanding the foregoing, the maximum aggregate Liquidated
      Damages payable hereunder shall be $900,000, or ten percent (10%) of China
      Hand’s investment pursuant to the Purchase Agreement. 


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Further,
      each of the parties who are signatories to this Letter Agreement agrees as
      follows: (i) this Letter Agreement and the Transaction Documents (as defined
      in
      the Purchase Agreement) constitute the entire agreement between the parties
      regarding the subject matter hereof and supersedes all prior understandings,
      agreements, or representations by or between the parties, written or oral,
      to
      the extent they related in any way to the subject matter hereof; (ii) no
      changes, modifications, or waivers to this Letter Agreement will be effective
      unless in writing and signed by each of the signatories hereto; (iii) the terms
      and conditions of this Letter Agreement shall be governed by and construed
      in
      accordance with the laws of the State of New York, without regard to the
      conflicts of laws provisions of such state; (iv) none of the parties signatory
      hereto may assign its rights or delegate its duties under this Letter Agreement
      without the express prior written consent of the other party, which consent
      shall not be unreasonably withheld; (v) this Letter Agreement may be executed
      in
      two or more counterparts, each of which shall be deemed an original and all
      of
      which, together, shall constitute one and the same instrument; (vi) facsimile
      execution and delivery of this Letter Agreement is legal, valid and binding
      execution and delivery for all purposes.

    


    Please
      indicate your consent to the terms of this Letter Agreement by executing Letter
      Agreement in the space provided below.

    


    
      	
              Very
                truly yours,

            
	 
	
              CHINA
                NEW ENERGY GROUP COMPANY

            
	 	 
	
              By:

            	
              /s/
                Jiaji Shang

            
	
              Printed
                Name: Jiaji Shang

            
	
              Title:
                Chairman

            


    

    


    Accepted
      and Agreed as of 

    the
      date
      of this letter:

    


    
      	
              CHINA
                HAND FUND I, LLC

            
	 	 
	
              By:

            	
              /s/
                John D. Kuhns

            
	
              Printed
                Name: John D. Juhns

            
	
              Title:
                Member-Manager